Blame the Dollar: Monthly Copper MMI® Falls 1.1% to 87

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MetalMiner’s monthly Copper MMI® registered a value of 87 in September, a decrease of 1.1 percent from 88 in August. LME copper prices and US copper producer price drops were two drivers of the index’s lower reading.

Copper_Chart_September-2014_FNL

As for external drivers, the US Dollar is the main culprit. One usual side effect of a stronger Dollar is weaker commodity prices. The USD surged 5% in only two months; commodities are getting hit, and so is copper. A Dollar surge in 2011 coincided with a downturn in commodities and another Dollar surge in 2012 contributed to more commodity weakness.

Copper (in black) versus US Dollar (in orange) since Marck

Copper (in black) versus US Dollar (in orange) since March. Source: StockCharts.com

In the chart above we can see how the US Dollar has significantly increased in only two months, having a depressing effect on copper. We warned of this bullish move last month. Certainly, the Dollar is not the only driver, but it is hard to see commodity prices rising in the face of a strong Dollar.

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The biggest reason for the recent Dollar rally has been a plunging Euro. A further decline of the Euro combined with a stronger Dollar could make commodity deflation even worse.

Meanwhile, the supply and demand picture for copper looks kind of blurry. The metal was expected to be in oversupply this year due to new mines coming into play and expectations of a drop in demand from a slowing China. However, these new mines haven’t gone into production yet and China is getting a boost thanks to stimulus measures. We believe that the macroeconomic drivers will determine the future trend of copper.

What This Means For Metal Buyers

It still looks early to go long on copper. Let the market consensus tell you what to do. We remain steadfast in saying the same thing we did at the start of the year: go long only if copper manages to break above $7,500 per ton.

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With a 2.5 percent decline on the LME, the copper 3-month price closed the month at $6,941 per metric ton. The cash price of primary copper saw a small decline on the LME this month, falling from $7,135 to $6,966 per metric ton. The price of US copper producer grade 110 decreased by 2.0 percent this month, ending at $3.84 per pound. With a 1.9 percent decline, the price of US copper producer grade 102 closed the month at $4.03 per pound. Last month, the cash price of primary Japanese copper dropped 0.9 percent to $7,293 per metric ton. The cash price of Chinese copper saw a small decline this month, falling from CNY undefined ($8,423) to $8,382 per metric ton.

The price of Korean copper strip held steady around $9.52 per kilogram last month. Chinese bright copper scrap traded sideways last month, staying around $7,213 per metric ton. Chinese copper wire experienced a flat month, staying around $8,205 per metric ton.

The Copper MMI® collects and weights 12 global copper metal price points to provide a unique view into copper price trends over a 30-day period. For more information on the Copper MMI®, how it’s calculated or how your company can use the index, please drop us a note at: info (at) agmetalminer (dot) com.

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