Copper

Set of copper pipes of different diameter lying in one heap

Copper prices increased last week on the heels of Chinese data indicating inflation growth, reassuring strong demand from the world’s largest consumer of the metal.

According to a report from MarketWatch, copper for March delivery grew 2.9% on the Comex division of the New York Mercantile Exchange last Tuesday, which was the largest one-day increase in nearly two months.

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“The 2017 growth rate was supported (by) much faster than expected project ramp ups in Peru in particular, and much lower than statistically normal rates of production losses through the year,” Citi wrote, according to the news source. “We believe both of these factors will be difficult to replicate in 2017.”

Overall, a weaker dollar was supporting metals and, in the short-term, a reduction in copper stocks in LME warehouses indicates a tighter market, which could further boost prices.

Copper Bounces Back from December

Our own Raul de Frutos wrote recently that copper prices declined some in December, along with other industrial metals, but the bull narrative is still in effect:

“The recent price decline in copper prices wasn’t that dramatic. So far, it seems like the bulls are still in control. A strong dollar and a possible slowdown in Chinese demand are factors that could bring prices down. Up until now, China’s demand looks strong and the dollar hasn’t had a big impact on metal prices. Therefore, we need actual reasons to turn bearish on copper,” he wrote.

How will copper and base metals fare in 2017? You can find a more in-depth copper price forecast and outlook in our brand new Monthly Metal Buying Outlook report. For a short- and long-term buying strategy with specific price thresholds:

Copper prices retraced in December. After the huge price run in November we were expecting to see some profit taking as prices need to digest gains.

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So far, the decline has been limited, with prices holding above $5,500/mt. Although copper has lost some of its post-election gains, it still managed to end 2016 with decent yearly gains, suggesting that sellers are not totally in control.

Copper’s Bullish Narrative

One of the key factors supporting copper prices is the earlier-than-expected supply deficit. While most analysts were previously projecting the copper markets to move into deficit by the end of the decade, many of them are now expecting a deficit as early as this year.

Another factor supporting copper prices is higher energy prices. Oil prices, the main benchmark for energy prices, regained the $50/barrel level in December. Saudi Arabia said it could be ready to cut output more than originally agreed upon at the latest Organization of Petroleum Exporting Countries meeting. Non-OPEC countries, including Russia, also agreed to an output cut north of 500,000 barrels a day. Energy is key in the metals industry. For copper, energy can form almost 20% of the production costs.

President-elect Donald Trump’s proposed infrastructure investments are also positive for copper prices. However, in our view, the key demand driver continues to be China, by far the largest consumer of the red metal. China’s Caixin manufacturing purchasing managers’ index rose to 51.9 in December from 50.9 in November and beat market expectations. That figure marked the sixth straight month of growth and the strongest upturn in Chinese manufacturing conditions since January 2013.

What Could Add Pressure to Copper Prices

The better-than-expected demand from China explains the ongoing strength in industrial metal prices. However, there are concerns that the country’s demand growth rates could slow next year. The real estate and automotive sectors are the engine propelling this rapid growth. If the demand growth from these sectors slows, this could have strong repercussions on China’s demand for industrial metals.

Another factor to watch is the ongoing strength of the U.S. dollar. Copper is no different than other commodities that have a negative correlation to the dollar. Further appreciation of the dollar could negatively impact copper prices. Higher interest rates in the U.S. are among the factors contributing to a stronger dollar. In December, The Federal Reserve raised interest rates by a quarter point, as expected, but policymakers signaled a likelihood of three increases in 2017, up from prior expectations of two moves.

What This Means For Metal Buyers

The recent price decline in copper prices wasn’t that dramatic. So far, it seems like the bulls are still in control. A strong dollar and a possible slowdown in Chinese demand are factors that could bring prices down. Up until now, China’s demand looks strong and the dollar hasn’t had a big impact on metal prices. Therefore, we need actual reasons to turn bearish on copper.

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The cost to produce the penny rose to 1.5 cents in the 2016 fiscal year, U.S. Mint spokesman Tom Jurkowsky recently said. That’s the first time costs have been up since 2011, but still just the latest in a string of losses for the most abundant but least valuable coin in circulation.

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In fiscal 2015 the cost was 1.43 cents; in 2014, it was 1.66 cents. The latest figures will be released in the Mint’s upcoming annual report.

For now, Mint facilities in Philadelphia and Denver will continue to stamp out the zinc slugs with a copper coat. In fiscal 2015, they churned out 9.16 billion pennies—more than the nickel (1.48 billion), dime (2.87 billion) and quarter (2.65 billion) combined. The Mint traditionally makes money on the dime and quarter. The combined fiscal weight of materials and overhead sink the penny and nickel, both of which are made of zinc slugs with a fine sheen of copper and nickel, respectively. We’ve documented how the penny and nickel cost more to produce than they are worth before.

Congress would have to pass a law to stop producing either the penny or the nickel.

I get it, you are thinking of what you are going to get your family for Christmas. However, Santa is bringing you good opportunities to buy some metals. Don’t miss them.

MetalMiner Price Benchmarking: Current and Historical Prices for the Metals You Buy

Base metals entered a bull market earlier this year. The real driver of this bull market has been the stronger-than-expected Chinese demand. Markets underestimated Beijing’s determination not to disappoint on its growth numbers. Thanks to the country’s increase in infrastructure spending, industrial metal prices are getting a tailwind.

The metals rally particularly extended in November. However, prices don’t just move in a straight line. If they move up quickly, buyers are tempted to take their profits until markets digest those gains. This is normal price action and why we normally see prices moving in a zig-zag. In the second half of December, there’s already been some profit taking and as prices pull back, buyers can find good opportunities to time some purchases. Let’s take a few examples:

Copper

Copper prices could find support soon

Copper prices could find support soon. Source: MetalMiner analysis of Fastmartkets.com.

Almost no analyst was bullish on copper prior to this rally, but it seems that the market now sees the possibility of a market deficit next year as almost no supply is due to come on-stream while demand seems robust. Read more

The Organization of Petroleum Exporting Countries‘ efforts to hold market share in Asia by keeping its customers, which take about two-thirds of its exports, supplied amid wider output cuts could prolong the global fuel glut and frustrate its attempt to bolster prices.

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Saudi Arabia, the defacto leader of OPEC will target its supply cuts at refiners in the U.S.and Europe rather than Asia. Ally Kuwait is following a similar strategy, and OPEC’s second-largest producer Iraq is even raising exports to Asia.

Vedanta Ordered to pay $100 Million Over Copper Mine

Konkola Copper Mines, owned by Vedanta Resources, has been ordered by a London court to pay the Zambian government more than $100 million for a claim related to the copper price, a state-owned company involved in the dispute said. The claim relates to outstanding payments under a 2013 copper price participation settlement agreement between KCM and ZambiaConsolidated Copper Mines Investments Holdings (ZCCM-IH).

MM-IndX_TRENDS_Chart_December2016_FNL-TOPVALUE100If you read MetalMiner, it’s no surprise to you that the industrial metals bull run took off in a major way this month. Copper rose nearly 17% to edge out the Raw Steels MMI (up 14%) as our December big winner, but even the metals that lost a little ground (aluminum and our global precious index) pared their losses below 3% on the MetalMiner Indx.

The industrial metals picture looks a lot more upbeat than it did just two months ago, but markets are fluid things. When will commodities and the surging U.S. dollar (the dollar index hit a new high Thursday) uncouple? Can the optimism last? What will higher interest rates mean in the new year?

We hope you made your purchases before prices took off and we’ll be here in 2017 and beyond to advise you on how to buy industrial metals in this bull market.

 

Set of copper pipes of different diameter lying in one heap

Set of copper pipes of different diameter lying in one heap

Copper prices experienced an increase to close out the week due in part to hope for stronger Chinese demand and a rally in crude oil.

According to a recent report from Dow Jones Business News, China consumes roughly 45% of global copper supplies and economic trends in the Far East suggest a significant effect on prices for the industrial metal.

Want a short- and medium-term buying outlook for aluminum, copper, tin, lead, zinc, nickel and several forms of steel? Subscribe to our monthly buying outlook reports!

“Right now the markets look rosy and there seems to be a reluctance to stand in the way of the move higher,” Matt France of brokerage Marex Spectron told Dow Jones. Also of note, growing crude prices have provided a boost to commodities with copper prices rising alongside oil.

The reason? According to the news source, the majority of investors buy and sell broad bundles of commodities and oil is typically involved, which leads to an effect on other commodities, in this case, copper.

Even Stronger Copper Prices on the Horizon?

This week’s developments for copper is nothing new as the metal has been rising strongly for the past month or more. Writes our own Stuart Burns:

“Copper consumers, of course, would like to know what they can expect for copper prices next year. Will they fall back or continue to be supported? So a letter yesterday to the Financial Times from Simon Hunt, one of the most experienced and respected analysts in the market, is of interest.”

How will copper and base metals fare for the remainder of 2016 and into 2017? You can find a more in-depth copper price forecast and outlook in our brand new Monthly Metal Buying Outlook report. For a short- and long-term buying strategy with specific price thresholds:

Changes in the outlook for copper’s supply-demand balances that drove a recent rally in prices support a more “bullish” environment for the metal at least until mid-2017, Goldman Sachs said in note to investors last week.

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“Although it is tempting to blame this on speculative positioning, the materially stronger fundamental developments that contributed to this surge in speculative interest are likely to underpin a more bullish environment for copper,” Goldman analysts wrote in a note dated Sunday. It’s a flip-flop for Goldman which was previously a copper super-bear.

Steel Imports in November

Based on the Commerce Department’s most recent Steel Import Monitoring and Analysis (SIMA) data, the American Iron and Steel Institute (AISI) reported recently that steel import permit applications for the month of November totaled 2,862,000 net tons. This was a 1.2% decrease from the 2,895,000 permit tons recorded in October and a 5.5% increase from the October final imports total of 2,713,000 nt.

Import permit tonnage for finished steel in November was 2,274,000, up 0.8% from the final imports total of 2,256,000 in October. For the first eleven months of 2016 (including November SIMA permits and October final data), total and finished steel imports were 30,379,000 nt and 24,322,000 nt, down 16.5% and 17.3%, respectively, from the same period in 2015. The estimated finished steel import market share in November was 27% and is 26% on the year-to-date.

Copper prices rose nearly 20% in November, a stellar rally that caught many by surprise… except us, of course.

Copper_Chart_December-2016_FNL

Following this sharp move, there were concerns about the pace of the metal’s gains. However, so far, the metal has shown resilience to giving those gains back. Indeed, it looks like copper still has fuel in the tank to move higher.

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Investors are pouring money into base metals as Chinese demand from infrastructure and construction continues to beat expectations. Momentum in copper is also being driven by hopes that U.S. President-elect Donald Trump will spend more on infrastructure. Stronger Eurozone and U.S. manufacturing PMIs also contributed support. Domestic PMI rose to 53.2 in November, the highest reading in five months and well above market expectations.

On November 30, OPEC agreed to curb its production to support falling oil prices. The news pushed crude oil prices above $50, providing support to commodity markets and metal prices.

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The International Copper Study Group (ICSG) estimates that global mined production will increase by 4% this year. But next year the ICSG is forecasting zero growth in mine supply. Even though copper markets are still in surplus, investors know that copper is a very slow business in terms of new project development. Consequently, even if prices continue to rise enough to incentivizee new developments, it will take a long time for that new supply to hit the market.

Despite analysts’ skepticism about copper’s rally, prices still have room on the upside. Given the ongoing price strength across the industrial metal complex, we see no reason not to remain bullish on copper.

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After rising strongly for the last month or more, copper prices now appear to be buffeted by every scrap of news that comes out.

MetalMiner Price Benchmarking: Current and Historical Prices for the Metals You Buy

“Copper prices fell this week as investors cashed in gains after the previous session’s rally,” news.com in Australia reported yesterday. The gist of the argument seems to be the 23% rise in the copper price last month was a step too far. The site quoted Caroline Bain of Capital Economics saying “You only have to look at the levels of investor buying to see that quite a lot of these rallies have been based on euphoria rather than grounded in fundamentals. We think we will see some profit-taking inevitably as we end the year”

Reuters, on the other hand, took a somewhat contrary view, reporting copper prices climbing mid-week, buoyed by a pickup in U.S. manufacturing. The newspaper reported new orders for U.S. factory goods recorded their biggest increase in nearly 1-and-a-half years in October, evidence that the manufacturing sector is gradually recovering after a prolonged downturn and as demand signals from China also improve. Read more