scrap copper price

The red metal met the Red Cross earlier this week in the kickoff post of our series on health-acquired infections (HAI) and copper's role in the war against them – but what hospital procurement officers and facilities management departments may want to know is, what's up with the copper price?

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First step in the multi-step program of "What's Up With the Copper Price?" is a look back at where prices have been: MetalMiner's monthly Copper MMI® registered a value of 75 in June, a decrease of 2.6% from 77 in May.

Copper_Chart_June-2015_FNL

The index decline was driven mainly by spot and 3-month London Metal Exchange prices, US copper producer grades 102 and 110, and Chinese copper wire.

What's Up With That?

Second step in the multi-step program of "What's Up With the Copper Price?" is knowing some of the underlying fundamentals that may have to do with its shift. For that, we turn to MetalMiner Editor-at-large Stuart Burns, who writes that:

"Analysts expect China’s copper demand to grow by 4% this year, yet that figure is based on considerable use in power grid investment and assumes government spending plans will be met. Power grid investment actually fell by 8.65% in April, according to the FT, and in the first four months of this year China completed Rmb86.6bn of grid investment, only 20% of the planned amount for the year.

Investors agree with the pessimistic outlook cutting their net long positions in copper, joining Chinese speculators who have been betting against copper all year.

A CNBC report says recent weakness is due to weak premiums, high scrap discounts and a failure of the seasonally strongest quarter for copper to translate into solid demand. China’s factories are now approaching a summer slow-down and with it lower metal consumption."

Outside China, there's always Mongolia – and the Oyu Tolgoi copper mine, from which Rio Tinto's recent bullishness is born. According to the FT, "Rio Tinto recently forecast that copper prices will recover faster than expected with demand outstripping supply within two years. This bullish forecast comes as the Anglo-Australian miner steps up talks in May with the Mongolian government aimed at finalizing a deal on a $6 billion expansion at Oyu Tolgoi, which had been stalled for months. The lack of new copper projects in the pipeline could result in a market deficit earlier than expected," the paper indicates, "but even if Rio Tinto was right, 2 years is still a long period of time where we could see further price declines."

What's Up With the Market?

For the third step in the multi-step program of "What's Up With the Copper Price?", we cast our focus onto the future by turning to our metals procurement specialist, Raul de Frutos:

"Copper prices have been rallying since February and, in the short term, they could continue doing so. For the short term, consider placing orders now for known demand. Don’t buy long-term forward, as copper is in a bearish market and we expect prices to lose steam soon and come back to lower levels."

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For more comprehensive commentary and specific copper price forecast thresholds, download our FREE forecast report!

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Is this a serious rebound in copper prices? Hmm... we still doubt it.

The monthly Copper MMI® registered a value of 77 in May, an increase of 2.7% from 75 in April.

Not a Demand-Based Surge

Copper prices have surged so far this year but prices are still well below what they were just a year ago.

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Demand coming from China is still weak. We believe that traders likely won't get evidence of a meaningful uptick in demand as Chinese demand remains weak and not likely to make a significant comeback in the medium term. Therefore, demand alone has little chances of supporting prices through the balance of the year.

Supply Side? Nope

On the supply side, there have been some constraints in Chile (the largest copper producing nation) because of climate and labor problems. On the other hand, major copper miners are cutting costs. This helps miners keep producing even while copper prices fall, as major input costs like crude oil declined. Just this year, the industry’s total costs on average fell 6%. The industry seems well-supplied and at this point, we don't see warnings in the supply side with the potential to dramatically change the direction of prices.

What IS Causing the Rally?

With this said, two things seem to be causing the recent copper's rally:

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The monthly Copper MMI® registered a value of 75 in April, an increase of 2.7% from 73 in March.

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The suspicious copper rally is still in place. Copper has rallied as much as 17% since it hit its trough in February. The move might seem impressive for the non-trained eye, but copper is just zigzagging.

Copper's Selling, But We're Not Buying

After the huge drop during the second half of last year, we believe that there is no point in freaking out over this two-month rally. Picking bottoms is very hard and definitely not a good strategy for metal buyers. Was February the bottom of copper's bearish market? Nobody knows. But we do know that trying to guess what was the bottom is a terrible strategy to take with copper since 2011. Prices have kept on falling, trough after trough... after trough.

In the fundamentals side, we don't see any game-changing factor that could drive a significant upturn in copper prices. The market remains far from being in deficit and the macroeconomic outlook from China remains poor. Copper demand is lacking momentum.

Now, with the fundamental picture being dormant, at best, can we expect copper prices to rise above last year's levels? That seems very unlikely. Especially while a strong dollar and low oil prices are having a depressing effect on commodities, and many other base metals are making record lows.

Before copper is ready to turn around, we'll have to see more price strength changes in the demand outlook and commodity markets. Both need to turn upward. We believe that the last four years gave copper buyers reasons enough to wait for real signs of strength before making large volume commitments.

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The US dollar weakened and eased concerns about its impact on corporate profits, while the euro recovered from a 12-year low in trading today.

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After months of strong jobs data, expectations have been growing that the Federal Reserve would signal a June rate rise at a meeting that begins on Tuesday. A stronger dollar erodes purchasing power for commodities. That, plus questions over China's economic growth after comments by Premier Li Keqiang added headwinds to copper, analyst Joel Crane of Morgan Stanley in Melbourne told Reuters.

"What we've seen on China's data indicators so far is fairly negative, so it's not surprising that people would be worried about whether the post-New Year recovery is underway," Crane said.

Premier Li vowed to keep China's economy growing at a reasonable speed, even as he also said authorities could do more to stoke growth, which triggered a rally in Chinese equities.

The prospect of more Chinese stimulus, and a rise in interest rates in the US, helped copper to a weekly gain. Prices have been gaining ground as China's factories ramp up after the Lunar New Year, climbing from 5-1/2 year lows of under $5,400 a metric t0n in January, but slowing economic growth and ample refined supply has blunted momentum.

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3-month copper surged to a six-week high on Tuesday after Federal Reserve Chairwoman Janet Yellen said it was preparing to consider rate rises on a meeting-by-meeting basis. Greece also secured its bailout extension from the EU and oil prices rebounded.

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Yellen said it would be several months before the Fed expects to raise interest rates but the consideration was now on the table. Three-month copper on the London Metal Exchange jumped to a session peak of $5,846 a metric ton today, the strongest since Jan. 13, and closed 2% higher at $5,785.

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The monthly Copper MMI® ticked up to 73 in March – after its fall off a tall building down to 70 in February, copper's dead cat bounced impressively 4.3% from its big drop.

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While it's one of only two indexes up this month, you shouldn't read too much into this bounce:

On the London Metal Exchange, itself, copper rose 7% in the month of February. This move shouldn't come as a surprise, either. Copper fell 25% since July 2015 and it needs some time to digest its super-sized feast of loss. Remember, prices don't move in a straight line, they move in a zig-zag.

Therefore, this move should be taken as a normal reaction within a falling trend – simply a temporary recovery from a prolonged decline or bear market, followed by the continuation of the downtrend. There is absolutely nothing to suggest that copper has eight more lives after this dead cat bounces.

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A. Gary Shilling writes that copper's fall will continue because producers have a great incentive to increase output despite low market prices.

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In his Bloomberg View piece, Investment and Money Manager Shilling blames the commodity boom of the early 2000s that led to massive building and expansion in China.

"It’s not economical to suspend some of these projects due to high sunk costs and shutdown expenses," Shilling writes. "Some producers, moreover, may not be free to slash output as prices swoon, especially if they’re government-controlled and need foreign exchange to service sovereign debts."

Copper is produced mainly in the developing countries of Chile, Peru, Congo, Zambia and Russia. China is a net exporter of aluminum but an importer of copper. The International Copper Study Group, made up of copper-producing and consuming countries, says demand will rise just 1.1% this year while output jumps 4.3%.

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Teck Resources Ltd., Canada’s second-largest mining company, is looking to buy a copper mine as the current slump in prices puts pressure on some rivals to sell.

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Teck, which also produces coking coal and zinc, is interested in locations with low political risk, Chief Executive Officer Don Lindsay told Bloomberg News in an interview. He declined to comment on specific assets.

“There are a couple of things that we think might shake loose,” Lindsay said. “We’re looking more towards the end of the year.”

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Copper dropped on Tuesday from a seven-week peak hit in the previous session as optimism over a weekend interest rate cut in top consumer China dissipated and inventories continued to rise.

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The main stock indexes in China, which consumes some 45% of the world's copper, fell more than 2% earlier as regulators' approval of a flood of new initial public offerings prompted worries over tighter liquidity.

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Copper ended the week with its highest price on the London Metal Exchange in six weeks. China cut interest rates again after the weeklong Lunar New Year celebration there.

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