Chinese Capacity Cuts Help Push Copper to Highest Point in Nearly Four Years

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Copper is on a tear.

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Copper rose to its highest point in nearly four years last week following further curbs on domestic production in China, closing at new year-to-date high for 2017. LME and Comex copper continued its longest bull run in more than a year, after closing at its highest level since January 2014 on Dec. 22.

Analysts suggest prices are being lifted by hopes that a stronger U.S. economy under a lighter tax regime will fuel demand for the metal. Maybe of more importance is the largest copper producer in China, Jiangxi Copper, was rumored to have been ordered on Monday to halt output for at least a week before a further assessment based on local pollution levels. The effect has been to boost support for Shanghai copper, which rose to a 2-month high. The firm disputes it has been ordered to halt production, but so bullish is sentiment the market has shrugged it off and continued to buy copper.

Following years of oversupply, robust demand for copper, particularly from buildout of charging networks required for electric cars and infrastructure for the integration of renewable energy investments, is driving expectations of further price rises, according to the Financial Times. As a result, prices hit U.S.$7,312/metric ton last week, the highest level since January 2014, as import data for China showed November refined metal imports jumped 19% to 329,168 metric tons.

While demand appears robust, the impression is developing that the supply market will be squeezed next year.

The Financial Times reports that analysts at Citibank estimate that nearly 30 labor contract negotiations are set to take place in copper-mining countries next year, potentially affecting 25% of global mine supply.

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Q1 could see prices take a breather and may present a time to buy forward if prices come off a little. Chinese New Year holidays often see a run-up in demand before the holidays, but overall the quarter suffers from the prolonged closedowns.

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