Weak Manufacturing Data Extends Coppers Decline

2015-01-05 19:10:00 Walker England, Kara Dailey

Talking Points:

In the week December 29th to January 2nd the average price of copper fell by 2.3 cents/pound
China’s manufacturing PMI contracts, standing at 49.5
Copper trades well below 200 day moving average

The week ending December 26th concluded with a 10.1 cent decline in the price of copper—a trend that continued through the start of 2015. In the week spanning from December 29th to January 2nd, the average price of copper fell by 2.3 cents per pound while the metal’s inventories increased by 1.6%. The excess supply and markdown in price can be attributed the release of weak manufacturing data in China and the Eurozone as well as the growing strength of the U.S economy and consequently the USdollar.

At the week’s midpoint (December 31st) HSBC reported a contraction in China’s manufacturing activity, the first contractionary movement in 7 months. Driven by weak domestic demand, both the production and new orders components fell by 0.3 and 0.5 pp respectively, leading the overall index to fall to 49.5. As the world’s largest importer of copper, such an indication of weak economic growth did little favor for the metal’s price which closed the day 2.8 cents lower at 2.822.

In continuation of the downtrend, copper prices closed the week at 2.815 following Markit’s January 2nd release of the Eurozone’s PMI. More or less stagnant, the manufacturing sector marginally increased from 50.1 in November to 50.6 in December. However, despite the monthly increase, the final quarter’s average (50.4) stands at the lowest rate since the country’s economic recovery began more than a year ago. The final quarter’s weak standing will likely place more pressure on the ECB to adopt further stimulus measures at their upcoming rate meeting on January 22nd.

Placing further pressure on the metal’s price—a strengthened USdollar. Released on December 30th, the Conference Board Consumer Confidence Index rose to 92.6 in December from 91.0 in November. Driven largely by improvements in the labor market, such a growing consumer confidence likely indicates continued advances in economic growth and thus further pressure on the price of copper.