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Copper Retraces Off 2015 Low, Yet Will the Momentum Prevail?

Copper Retraces Off 2015 Low, Yet Will the Momentum Prevail?

2015-02-26 16:58:00
Walker England, Kara Dailey,
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Talking Points:

  • Copper continues advancement on positive Chinese PMI data
  • The prevailing trend for 2015 remains in dispute
  • Copper has retraced off its 2015 lows

Market operations have resumed in China following the conclusion of the Lunar New Year. Aligning with the release of preliminary manufacturing PMI data, the acceleration in activity has positively affected the price of copper. While the gains for this week have been fairly substantial (+5.7%) the bias for 2015 remains mixed.

As the world’s largest importer of refined copper, ores and concentrates, China accounts for 40% of the metal’s global demand. Any variation in the country’s growth consequently impacts the price of copper. On Wednesday HSCBC reported an uptick in China’s manufacturing PMI; increasing from 49.7 in January to 50.1 in February the index reached a 4 month high. This return to expansion bodes well for copper, which is often used as a semiconductor in production and is used for both aesthetic and practical purposes in construction.

Several investors are riding this wave, with copper for delivery 3 months out showing an upward bias. As of today, on the COMEX division of the NYMEX, copper has steadily risen to a high of $2.7140/lbs. after starting the month out at just over $2.4500/lbs. This sentiment may ring true as the U.S. dollar index has slowed since peaking on February 12th. The currency’s wavering may continue as Federal Reserve Chair, Janet Yellen, recently expanded the Fed’s flexibility regarding rate hikes during her 2 day testimony before Congress.

This optimism however, is not shared by all. Last month Goldman Sachs lowered their 2015 forecast for copper to $2.36/lbs. or $5,542 per tonne due to sunken oil prices, slowed growth and a primarily stronger U.S. dollar. This assessment finds support from the International Copper Study Group (ICSG) whose projections indicate that for the first time in 5 years copper production may exceed demand. The surplus, as determined during their semiannual meeting in Lisbon, is expected to reach 390,00t.

Perhaps a surplus is already present with inventories across global metal exchanges up by 5.8% for the week ending February 20th. The excess, most apparent on the LME.

Copper Weekly Chart

Copper Retraces Off 2015 Low, Yet Will the Momentum Prevail?

Chart Created by Walker England Using MarketScope2.0

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