After rising strongly for the last month or more, copper prices now appear to be buffeted by every scrap of news that comes out.
“Copper prices fell this week as investors cashed in gains after the previous session’s rally,” news.com in Australia reported yesterday. The gist of the argument seems to be the 23% rise in the copper price last month was a step too far. The site quoted Caroline Bain of Capital Economics saying “You only have to look at the levels of investor buying to see that quite a lot of these rallies have been based on euphoria rather than grounded in fundamentals. We think we will see some profit-taking inevitably as we end the year”
Reuters, on the other hand, took a somewhat contrary view, reporting copper prices climbing mid-week, buoyed by a pickup in U.S. manufacturing. The newspaper reported new orders for U.S. factory goods recorded their biggest increase in nearly 1-and-a-half years in October, evidence that the manufacturing sector is gradually recovering after a prolonged downturn and as demand signals from China also improve.
Reuters suggests that prices are supported by investors looking some years down the line saying a supply deficit could emerge by 2020. Investors are also taking a decline in London Metal Exchange inventory and a growing net long speculative position on the LME as further support for increasing prices.
Copper consumers, of course, would like to know what they can expect for copper prices next year. Will they fall back or continue to be supported? So a letter yesterday to the Financial Times from Simon Hunt, one of the most experienced and respected analysts in the market, is of interest.
Hunt calls out the data on which weak projections for copper prices are based. In his estimation, China’s refined copper consumption is set to rise by around 7% this year — led by strong demand for power cables, high-performance sheet and strip for the auto and computer appliance sectors — by a recovery in magnetic wire demand and by general demand in the wider economy.
Although President-elect Trump’ infrastructure plans have caused quite a stir, Hunt suggests China’s infrastructure spending is, and will continue to be, a multiple of whatever the U.S. is likely to spend. Hunt suggests copper’s rise this year is part of a long-term bull trend establishing itself and that, although a market’s turn from bear to bull is always met initially with skepticism, we should get used to rising prices again.
The global economy is inflating, he believes, and inventory restocking from raw materials through to finished goods is underway. In his firm’s estimation, world refined copper consumption should rise by 4.5% both this year and next, and by at least 2.7% in 2018. Resulting in deficits appearing earlier than the end of the decade timeframe that many are predicting.