The Copper MMI (Monthly Metals Index) jumped five points to 88, driven by skyrocketing LME copper prices. LME copper prices increased by 6.4% in December.
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LME copper prices are back again over the $7,000/metric ton level. Moreover, copper prices breached a previous peak, signaling strength in the rally. Trading volume also remains heavy, supporting the uptrend.
Source: MetalMiner analysis of Fast Markets
Despite skyrocketing in December, copper prices fell slightly during the first few days of January. However, that does not signal any weakness for the rally yet, as prices increased for the entire previous month. Therefore, copper prices may take a little breather this month to digest previous gains.
The U.S. Dollar
Copper and the U.S. dollar have a negative correlation. This means when the the U.S. dollar appears high, copper prices tend to trade lower.
Right now, we see just the opposite.
The U.S. dollar. Source: MetalMiner analysis of Trading Economics
Some analysts believed that the U.S. dollar had turned the corner and had started to recover. Despite the Fed rate hike in December, the U.S. dollar has continued to fall. The U.S. dollar has also seen heavy selling volume, which suggests more weakness.
Typically, the U.S. dollar trades lower when commodities and base metals trade higher. Copper (Dr. if you will) tells us much about commodities because the dollar has such a great influence on its price (direction).
Therefore, buying organizations will want to follow U.S. dollar price trends closely.
Copper Scrap vs. LME Copper
The price divergence between copper scrap and LME remains wider than historical spreads; though, this month, both moved in tandem.
Chinese copper scrap prices increased by 5.76% this month, compared to the 6.4% jump in LME prices.
Although these two don’t increase by the same amount, they tend to follow a similar trend. Data from both reflects a clear uptrend that appears sustainable, at least for the short term.
Source: MetalMiner data from MetalMiner IndX(™)
What This Means for Industrial Buyers
During December, buying organizations had opportunities to buy some volume. The relevance of the price jumps increases when the U.S. dollar shows weaknesses and all the base metals show strength.
Therefore, as copper prices remain bullish, buying organizations may want to “buy on the dips.” For those who want to understand how to reduce risks, take a free trial now to MetalMiner Monthly Outlook.
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