The US Bailout and Copper Prices

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Copper tumbles according to this Guardian article and copper could explode if the dollar falls according to this Purchasing.com article. So which is it?

According to the Guardian article, “All base metals are moving in conjunction at the moment,” said analyst Gayle Berry at Barclays Capital. “What we see is a broad-based movement in prices in relation to broader macro-economic trends.” That article also suggests that commodity prices are under pressure these past few weeks as investors have sold off positions as the macro-economic situation has worsened. Yet on the other hand, there may be a stampede into base metals (causing price increases) as a safe haven. And according to MF Global analyst Edward Meir, “If the markets get a sense that Congress is close to sealing a deal, we could see a substantial reversal in the dollar and a subsequent easing in metal prices.”

Copper traded at $6990 on the spot market as of Wed, down from its record high of $8940 back in April. Yet some point to an 8000 ton fall in LME inventories, mostly from Korea as a sign that China demand is about to start picking up (China is the largest consumer of copper, according to the Guardian article). But the fact remains, car sales are down everywhere, including in China, residential construction has come to a halt here in the US and Europe has largely been in recession.

What to watch: the dollar, China demand and the market’s reaction to the bailout. All three will determine where the copper market is going in the next 3-6 months.

–Lisa Reisman

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