A stronger dollar in May caused most base metals to weaken. However, in June, the dollar has pulled back, as expectations for rate increases recede.
The red metal has held its value well this year, but it has found strong resistance near $7,500 per metric ton. Unlike other metals like zinc and steels for which we recommended buying forward earlier this year, we’ve kept recommending buying only small quantities of copper for quite some time now.
Rising Inventory Levels
Due to a surge in inventories at London Metal Exchange warehouses, the weaker dollar in June failed to provide a lift to prices. Copper warehouse levels in the LME system rose by almost 40% on the month to date after experiencing the highest two-day inventory surge since 2004.
China’s copper imports jumped 19.4% in May from the same period last year. Imports are running strong over the first five months, up 22% compared to the same period last year, after a weaker dollar boosted Chinese purchasing power.
The increase in refined copper imports could be taken as bullish. However, reading the fine print, imports of copper concentrate for use by smelters jumped 45% from a year ago. The surge in concentrate imports suggests that China’s copper refined imports could ease further in June as rising domestic smelting production will increase domestic supply and reduce import demand. That could keep a lid on prices for some time.