The Copper MMI (Monthly Metals Index) traded lower this month, falling two points to 87 for our March reading.
The Copper MMI fell for the second consecutive month, after the sharp increase in prices at the end of last year. In February, LME copper prices fell by 3.5%.
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The LME copper short-term downtrend does not seem that bearish when looking at the two-year chart. Copper prices retraced this month again, but still hold above the blue dotted line, which represents the trend line (prices below that line might indicate a change in trend). In December, copper prices skyrocketed and breached the $7,000/st level, confirming long-term bullish sentiment remains intact.
[caption id="attachment_90695" align="aligncenter" width="580"]
Source: MetalMiner analysis of FastMarkets[/caption]
Meanwhile, this month, a stronger U.S. dollar added downward pressure to commodities and industrial metals. Analysts also claim the latest “bearish” downtrend occurred due to increasing LME stocks.
MetalMiner analyzes copper supply from two different perspectives: copper stocks and global copper supply.
Copper Stocks
Copper stocks at the major metal exchanges totaled 537,722 tons at the end of November 2017, reflecting a decrease of 0.3% from stocks in December 2016. In particular, LME stocks fell by 41%, while SHFE stocks increased by 12% in 2017.
However, 2018 has come with some recoveries for LME copper stocks.
Copper stocks are at a current 324,900 tons. This means LME copper stocks are 13,075 tons higher than at the beginning of 2017, and 85,500 tons higher than at the beginning of 2016.These numbers show some recovery for LME copper stocks; this information has likely fueled trading sentiment this month.
CME stocks also increased at the beginning of the year. In 2015, CME stocks were just at 20,000 tons, compared to the current 209,000-ton level. Both of these numbers (CME and LME stock levels) have moved trader sentiment.
Global Copper Supply
The Indonesian unit of Freeport-McMoran’s copper mine and Amman Mineral Nusa Tenggara (AMNT) are waiting for last-minute ministry approvals to their application for an extension to continue with copper concentrate exports. Freeport’s export order for the Grasberg mine expires this month (copper mines have to reapply for export licenses every year).
Freeport had an export quota of 1.1 million tons of copper ore concentrate ending February 2018. Exports could stop this month, but mine production could continue.
Meanwhile, the Chinese Ministry of Environmental Protection has tightened the “allowable” impurities levels further. Therefore, instead of importing scrap, China now imports unwrought copper for downstream production.
Copper supply also looks threatened in Chile and Peru, particularly if workers go on strike since labor contracts expire soon. The powerful labor union at the Escondida copper mine cast doubt on the chances of starting talks on a new labor agreement with the company before formal negotiations commence in June.
Global copper supply still shows some uncertainty with possible copper supply shortages coming in 2018. Therefore, buying organizations may want to understand the global picture rather than just considering the trend based on stock levels and actual copper supply.
What This Means for Industrial Buyers
In February, buying organizations had some opportunities to buy some volume. As long 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 the MetalMiner Monthly Outlook.
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Actual Copper Prices and Trends
Tag: copper MMI
Copper MMI: Copper Prices Cool After December Surge
The Copper MMI (Monthly Metals Index) traded lower this month, falling one point for a February reading of 87. The fall was driven by a slight retracement of copper prices, which had skyrocketed in December. In January, LME copper prices fell by 1.21%.
Despite the price retracement, LME copper prices held above the $7,000/mt level at the beginning of February, and fell below this level during the second week. Trading volumes still support the uptrend. Copper prices could continue their rally.
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[caption id="attachment_90192" align="aligncenter" width="585"]
Source: MetalMiner analysis of FastMarkets[/caption]
Labor Disputes Could Threaten Copper Supply
Mine strikes continually threaten copper supply. BHP’s Escondida mine, the world’s largest copper mine, failed to develop a new labor agreement in advance of formal negotiations, scheduled for June. Last year, a 43-day strike at the Escondida mine impacted copper supply.
Since BHP’s Escondida copper mine produces around 5% of the world’s copper, it’s easy to see the impact of strikes on LME copper prices.
Meanwhile, Glencore forecasts its own copper output to increase by 150,000 tons at its Katanga mine in the Democratic Republic of Congo.
U.S. Dollar, Copper Back to Negative Correlation
Copper and the U.S. dollar maintain a strong negative correlation. The negative correlation gives the direction of the trends; when the U.S. dollar is weaker (downtrend), copper prices are stronger (uptrend).
The negative correlation did not hold during the first six months of 2017, nor did it hold for commodities and the U.S. dollar. However, the historical negative correlation has reappeared, as copper prices and the U.S. dollar now trade in opposition to one another.
[caption id="attachment_90193" align="aligncenter" width="585"]
The U.S. dollar in black. Copper spot prices in purple. Source: MetalMiner analysis of StockCharts[/caption]
The U.S. dollar traded sideways during Q3 2017. Many analysts (not MetalMiner) started to believe the U.S. dollar had reached a bottom.
MetalMiner, however, remained more bearish on the U.S. dollar, as the dollar did not give any clear signs of a trend reversal. The distinction between a short-term trend that could impact prices in one to three months, versus a long-term trend, which could actually impact a buying strategy becomes important. The fact remains, the U.S. dollar has fallen to a more than three-year low.
Copper Scrap vs. LME Copper
In January, copper scrap prices did not move with the LME copper price. LME copper prices fell slightly, while copper scrap prices increased by 2%. Therefore, the spread between the two decreased slightly this month. We can expect these types of divergences in the short term, although the two tend to trade together over the longer term.
[caption id="attachment_90194" align="aligncenter" width="585"]
Source: MetalMiner data from MetalMiner IndX(™)[/caption]
In January, several Chinese copper scrap restrictions went into effect. The Ministry of Environmental Protection announced that only end-users and copper scrap processors will be allowed to import. This restriction in effect removes Chinese traders from the copper scrap market.
What This Means for Industrial Buyers
In January, buying organizations had some opportunities to buy some volume. The weak U.S. dollar and strength of other base metals support the bull narrative for copper. As long 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 the MetalMiner Monthly Outlook.
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Actual Copper Prices and Trends
Copper MMI: Dr. Copper is Back on the Bulls
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.
[caption id="attachment_89608" align="aligncenter" width="580"]
Source: MetalMiner analysis of Fast Markets[/caption]
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.
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The U.S. dollar. Source: MetalMiner analysis of Trading Economics[/caption]
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.
[caption id="attachment_89610" align="aligncenter" width="580"]
Source: MetalMiner data from MetalMiner IndX(™)[/caption]
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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Actual Copper Prices and Trends
