After kicking off the year with better-than-expected trade data from China — and slow, ongoing economic recovery in the US — copper teamed up with other commodities in a sharp selloff last week.
By market close on Friday, copper had retreated from its February high of $3.7820 per pound.
During the first half of this week however, some of the lost ground was regained, as the May futures contract on the COMEX gained 0.4% to $3.5735 per pound.
Key Players in Downward Pressure
While several factors (like Chinese growth, a stronger dollar, and comments from the Fed) drove all metals and commodities downward last week, other factors specific to copper led to the selloff.
When commenting on a report from Kitco News, Societe Generale metals-researcher Robin Bhar said, “The market got ahead of itself [on strong news in the first of the year]. It takes awhile for good economic data to filter through to the physical demand.”
Another Factor: The Lunar New Year
Celebrated in China and other Asian countries, the annual festivities of the Lunar New Year put pressure on prices, Bhar said.
Many firms shut down, especially in China, which accounts for nearly 40% of copper’s global demand. Since so many buyers were out of the market, sellers were able to put downward pressure on the metal.
This also had a negative impact on gold, silver and other commodities.
A Strong Long-Term Outlook
Although last week looked grim for copper (and other metals), its long term outlook is actually very promising.
First is China. Once the Lunar New Year is over and we begin to enter spring, consumption generally rises. This is especially true once fabricators in the northern part of the country resume operations.
Another sign pointing to the resurgence of copper comes courtesy of Bill O’Neill at LOGIC Advisors. Besides economic data spurring copper, O’Neill points to information from the U.S. Commodities Futures Trading Commission (CFTC).
According to the data, more speculators are entering the copper market.
Long Positions in a Futures Market, Along with QE, A Bullish Sign for Copper
In its most recent data release, the CFTC reports that copper added 9,691 gross longs and only 1,489 gross shorts.
In addition to this interesting piece of information, increased demand, along with Fed and central bank policies, is expected to buoy copper.
Last week, Fed officials expressed doubt about the current monetary policy — which helped spur last week’s selloff.
In fact, once Fed Chairman Ben Bernanke announced on Monday that the Quantitative Easing program(s) would continue, metals like copper changed direction…..they started going up.
The Impact of Supply
Another factor driving copper is supply. Some analysts believe copper will enjoy a strong first half of 2013, but will experience some weakness later in the year, as added supply becomes available.
Yet Morgan Stanley disputes this claim. The global financial services firm predicts copper’s average price at the end of 2013 will be higher than it was when 2012 closed. The firm also doubts new supply can be injected into the market in time to dent prices.
The Perfect Storm?
Strong rallies in the last few years have led to a new frontier in metals investing: copper bullion.
Indeed, modest price swings like those in the last few days rarely trickle down to copper’s coin and bar level.
In the long-term, copper bullion may be the “next silver,” as a perfect storm — increasing demand, shrinking supply and loose monetary policy — put upward pressure on prices.
The Future of Copper: We Want to Hear From You
What are your thoughts on the future of copper bullion? Will it grow to be a metal investors flock to in years ahead?
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