INZ: Copper price enjoys strongest rally in four years
Copper prices are have trended strongly to the upside in recent days, with the red metal enjoying the biggest surge in confidence since 2011, as the weak dollar supports while traders price in rising expectations of impending economic stimulus in China.
Copper futures for July delivery, the most-traded contract on the New York Mercantile Exchange, were again pushing five-month highs today, trading 0.33 percent higher on the day at $2.930 per pound as of 11:15 BST. The contract marked the best week in 4 years last week, adding 6.3 percent, which pushed prices to 4.5 percent in the green, year-to-date.
The two strongest contributing factors were argued to have been rising speculation of an incoming stimulus programme in China and weakness in the dollar.
China, which accounts for about 40 percent of the global demand for copper, clocked a set of disappointing data recently. The government logged its April manufacturing PMI at 50.1 last week, meaning manufacturing activities have expanded at the slowest pace on the scale. HSBC, however, reported its reading at 48.9 on Sunday, suggesting the sector, which is both a large part of the Chinese economy as well as being a significant consumer of copper, has contracted.
Further downbeat data was reported earlier in April, with fixed asset investments, house prices, industrial production and GDP all scoring below expectations.
This data may seem bearish for copper at first sight but it spurs speculation that the Chinese government will intervene, as it has on a number of occasions in the past, to stimulate growth and demand, which spells good news for copper.
“This is a Chinese story,” John Payne, senior market analyst with futures brokerage Daniels Trading in Chicago, said on Sunday as quoted by The Wall Street Journal. “The more negative the data is out of China, the more it’s a bullish indicator [for copper], because of expectations” that the government will introduce additional measures in an effort to prop up the economy.
Further supporting the red metal, the US dollar has lost nearly four percent over the past three weeks.
The value of the dollar tends to move inversely with copper and other hard commodities, as it lessens the price that holders of other currencies have to pay for acquiring those assets, thus lifting demand.
Some cautioned, however, that a correction might be due, as speculation-induced rallies tend to experience swift swings.
"I'm looking for a pullback here, I think it's going to settle in a little bit," David Seaburg, head of equity sales trading at Cowen, said on Friday as quoted by CNBC. "I think this spike is really predicated mostly on dollar weakness and hedge-fund short-covering here."
In the medium-term, analysts have projected that a rally could be in store for copper prices, as a number of major mines face expiring labour contracts and tough negotiations with unions.
Over the longer term, experts disagree on when the tide will turn for copper, with some projecting that demand will outpace supply by the end of the year, while others don’t see a deficit occurring until at least 2017.
As of 12:41 BST, Tuesday, 05 May, Copper's price is $2.92.
