Copper is Up on a Six-Month High

- November 7th, 2016

Copper was on an upward trend last week – could this be the start of the red metal’s recovery?

Copper was on an upward trend last week, closing the week at $2.26 per pound. Early on Monday, copper futures were at $2.31 per pound, registering a six-month high.
The Wall Street Journal wrote that this rally is copper’s “longest winning streak in at least 28 years, as traders bet that the global economy may be picking up after a long period of sluggish growth.”

China leads the way

Economic data from China, specifically the country’s Purchasing Mangers’ Index (PMI) and Caixin Manufacturing PMI, both indicated a 51.2 rise in October. The PMI measures large state-owned factories, while the Caixin Manufacturing PMI measures mid-size companies. These indicators further prove that economic stabilization is coming to China. Additionally, China’s Consumer Price Index also rose in September, which is a first since 2012.

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Strength in numbers

China is the world’s biggest copper consumer, with varied uses in manufacturing electricity, construction and transportation. When the leading consumer of copper moves, the price of copper naturally follows.
Further to manufacturing, Chinese car sales also saw an increase by 29 percent in October — the biggest since January 2013. For the first time in 2016, new vehicle purchases in China could surpass sales in North America.
However, the Wall Street Journal warns that the rally in copper prices could be temporary, and that it, “could reverse because of any number of factors, from a sudden drop in oil prices to extended political uncertainty stemming from a contested U.S. election.”

Copper market forecast

Copper is certainly a commodity that is on the move. The International Copper Study Group forecasts a surplus of around 160,000 metric tonnes of copper in 2017, with the world refined production of copper expected to maintain a similar growth of around 2 percent in 2017. China, once again, is poised to be the biggest contributor to world growth. In 2017, growth in world apparent refined usage is expected at around 1 percent.
On the other hand, an article on Seeking Alpha says, “Copper snapped back to above recent highs in a sign that the market is preparing to become more volatile in the weeks and months ahead.”
 
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Securities Disclosure: I, Pia Rivera, hold no direct investment interest in any company mentioned in this article.

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