Copper prices got hit in May, as prices fell short of resistance levels.
While overcapacity is still an issue, copper really needs a weaker dollar to join other metals in rising in price. We saw the exact opposite last month. The U.S. dollar rebounded and base metals fell across the board.
Investors are simply not excited enough to trigger a bull run in copper prices. The Copper MMI fell 5% last month as overcapacity still plagued the red metal. Rather than cut capacity, Rio Tinto Group approved a $5.3 billion expansion to more than double output at the Oyu Tolgoi copper mine in Mongolia, making it one of the world’s largest copper mines.
Rio is also expanding its iron ore efforts. Even though almost everyone seems to agree that the market is oversupplied, copper producers are still quite optimistic on the long-term picture and are expanding rather than curtailing production.
We also saw the Chinese stimulus show its first signs of weakening this month, further hindering demand in the world’s largest construction consumer. We continue to advise readers to not buy copper on weakness, rather, wait for strength.
A softer dollar will likely be able to offset some of the negative sentiment created by weak demand in China, and copper was able to hit a four-week London Metal Exchange high on Friday as the dollar did, indeed, weaken. But the rally was short-lived and funds have already begun to sell copper again. It may be some time before we see a real shift in this market, barring production cuts.
Actual Copper Prices
The primary, three-month, LME copper price fell from $4,920 a metric ton in May to $4,674/mt this month, a fall of 5%. U.S. Grade 110 copper fell from $2.96 per lb. in May to $2.83 a lb. this month, a fall of 4.4%. U.S. Grade 102 copper also fell from $3.15/lb. in May to $3.02/lb. this month, a drop of 4.12%.