Copper MMI: Dr. Copper Heats Up Again

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The Copper MMI inched four points higher this month, returning to September levels. This comes as no surprise, as copper outperformed other base metals again.

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Source: MetalMiner analysis from FastMarkets

Copper prices look strong as they twice breached the $7,000/metric ton ceiling in October. Moreover, copper prices climbed over the previous peak (during the beginning of September, yet  below the $7,000/mt ceiling), which signals the continuation of the bullish sentiment.

Even if price pullbacks occur, the uptrend appears sustainable. Readers may notice the green dotted line in the chart above, which signals the start of the sharp copper rally. Copper prices today stand about $1,000/mt higher than prices in July.

Supply and demand indicators also point to a continuation of the copper rally. The International Copper Study Group forecast a of 151,000-ton deficit for this year. The deficit may continue next year, which would support copper prices.

What is the U.S. Dollar Doing?

Copper is commonly treated as an economic indicator (often referred to as Dr. Copper). Copper prices remain linked to the U.S. dollar. As with many other dollar backed  commodities, if the U.S. dollar is strong, copper prices often fall. In other words, copper prices and the U.S. dollar have a negative correlation.

The U.S. dollar in black. Copper prices (EOD) in blue. Source: MetalMiner analysis from StockCharts

Based on the chart above, for much of last year, the opposite dollar/copper correlation did not hold true. Copper prices, however, appear to fluctuate with dollar movements on a daily basis (when the dollar increases one day, copper prices decrease too, and the opposite also holds true), as well as on a long-term trend basis.

However, it may take some time for both to correlate negatively again.

Despite the latest short-term uptrend of the U.S. dollar, MetalMiner remains hesitant to call a bull market for the U.S. dollar.

Copper Scrap vs. LME Copper

The latest copper price increase came as a result of a Chinese copper scrap ban, hence the need to also analyze copper scrap prices.

Source: MetalMiner data from MetalMiner IndX(™)

Scrap prices increased this month by 3.2%, compared to a copper price increase of 4.6%. The Chinese government has imposed tougher copper scrap import requirements. The ban may result in tighter supply of copper scrap, forcing China to import more refined copper. Even if the percentage increase in prices between scrap and LME copper remains unequal, we expect them to still trend together.

What This Means for Industrial Buyers

As copper prices continue increasing, buying organizations may want to “buy on the dips.”

For LME copper prices, buying organizations can also read more about longer-term copper price trends with our free 2018 Annual Outlook, or take a free trial now.

You can also subscribe to the Monthly Outlook for a short-term analysis. Reacting to short-term movements in the market will reduce purchasing risks.

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