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After reaching a five-week high last week, copper dropped, but the base metal’s future remains bright.
Last week copper climbed almost six percent, its best performance in five weeks, and touched its highest at $5,930. But on Monday, with markets preparing for US president-elect Donald Trump’s inauguration, the base metal closed down on the LME.
Three-month copper on the LME decreased a 0.7 percent and finished at $5,865.
“This is probably just a bit of a pause for breath. Everyone is watching and waiting to see what happens this week, with comments from the presidential inauguration and other bits and pieces,
“We have Janet Yellen speaking about U.S. banking, and a lot of key economic indicators,” Cantor Fitzgerald analyst Asa Bridle said.
The base metal ended last year with the biggest quarterly gain since 2010 as investors bet on a brighter demand forecast in China and the US, the world’s two top users.
Despite this price slip, also supported by a stronger US dollar, copper prices have climbed more than 4 percent so far this year.
Last week, official customs data from China, responsible for some 45 percent of global consumption of the red metal, showed record imports of copper in 2016.
The Asian country’s refined copper imports surged nearly 30 percent to 490,000 tonnes in December compared to November, boosting imports for 2016 to a new record of 4.95 million tonnes, up just under 3 percent compared to the 2015 total.
Concentrate imports soared last year, with volumes gaining 28 percent year on year hitting an all-time high of 16.96 million tonnes for 2016. December imports declined only 5 percent from the monthly record of 1.76 million tonnes in November.
“We’re quite positive for this year for copper. The copper/nickel and copper/zinc ratios are still low so there’s room for copper to re-rate relative to other metals,” Xiao Fu, head of commodity market strategy at Bank of China International, said.
In addition, last week Indonesia’s government announced that it will relax bans on the export of low-grade ore, stopped since 2014, in an attempt to boost their economy which faced a budget deficit last year.
Under the new regulation, companies can continue exporting copper concentrate if they meet certain conditions.
Freeport-McMoRan (NYSE:FCX) and other miners have halted shipments of copper concentrates to abide by the rule that took effect on Thursday. As a result, supply of the red metal could tighten, although it will not have an immediate impact on global copper prices due to China’s ample metal stockpiles ahead of the Chinese New Year.
A Freeport spokesman said on Wednesday that the firm was “working cooperatively with government officials to ensure that our operations can continue without interruption.”
The company has said its targeted production from its Grasberg mine was 180,000-200,000 tonnes of copper ore per day.
That said, the outlook for copper remains positive for 2017, with many analysts expecting the base metal to perform well during the year.
“Manufacturing indicators still look good, which could suggest that the global economy has got off to a good start in 2017,” Danske Bank analyst Jens Pedersen said. “That is supporting prices.”
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Securities Disclosure: I, Priscila Barrera, hold no direct investment interest in any company mentioned in this article.
