Is Copper On Its Way to Recovery?

Better economic numbers from China are providing support to copper and other base metals. Specifically, the Purchasing Managers’ Index (PMI) for the manufacturing sector in China climbed to the highest level since October 2014.
“The increased manufacturing activities reflect the recovery in growth momentum and are also likely to contribute to robust demand for metals,” said Commerzbank in a commodities report.
Copper price dipped to a two-month low of US$4,600 per ton on August 30, 2016 as the firm US dollar and increasingly gloomy sentiment among market participants continues to weigh on the price.

Some analysts have said the outlook for copper price remains lackluster in light of the absence of any sustained supply response to the still weak copper recovery and softer global demand prospects. London Metal Exchange statistics show that financial investors withdrew sharply from copper last week. In doing so, they likely made a major contribution to the recent decline in the copper price.
Still, although copper prices have seen a dramatic decline in the past few years, and particularly in 2015, HSBC Securities analyst Jonathan Brandt is taking a somewhat more optimistic view. He says copper prices appear to have stabilized with the metal largely trading in the US$2 to US$2.30 a pound range in 2016.
“While downside risks for copper demand remain fairly high, we believe that copper prices have bottomed out and we anticipate a gradual recovery from here on driven by moderate growth in Chinese demand and tightening supply in the medium and long term,” Brandt said.

The average copper price has slipped all the way from US$4 a pound in 2011 to US$2.50 a pound in 2015. HSBC expects the price to average US$2.16 this year and US$2.25 in 2017.
Meanwhile, data from the National Statistics Institute indicates that Chile produced around 448,000 tons of copper in July, a 1.5 percent decrease from last year’s levels. Production in the first seven months of the year dropped by 5 percent year-on-year to 3.2 million tons, a decrease that is attributed to lower ore grades and the decline in the price of copper.
“However, it remains to be seen whether the fall in production in Chile, the world’s largest copper mining producer by far (with a market share of 32 percent), will again spark greater concerns about supply among market participants, as production elsewhere is being expanded despite low prices,” Commerzbank said in its report.

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Securities Disclosure: I, Peter Kennedy, hold no direct investment interest in any company mentioned in this article.