Copper Rout Continues As Price Dips Below US$3.00
September 18, 2017
By Frik Els
Copper futures trading on the Comex market in New York suffered another sharp decline last week as analysts warned of a likely correction following a week of speculative buying.
In massive volumes of 2.7 billion pounds in morning trade alone, copper for delivery in December slumped to a low of 2.9710 a pound (US$6,550 per tonne), down more than 2% from last Tuesday’s close to a three-week low.
Two weeks ago copper hit an intra-day high just shy of US$3.18 a pound (more than $7,000 a tonne), the highest since September 2014. But disappointment about imports by China, responsible for some 46% of global consumption of the metal, rising stock levels at LME warehouses and receding mine supply worries saw the rally come to a screeching halt.
The prospect of a weakening renminbi also emerged as factor for the pullback after Chinese policymakers this week relaxed rules to curb speculation against the yuan that had been in place for nearly two years
A correction on copper markets may also have been overdue as speculative interest has been running ahead of industry fundamentals. Hedge funds built successive record net long positions — bets on rising prices — in recent weeks, which according to the latest report totalled the equivalent of more than US$9 billion at today’s prices.
Reports at the end of July that China is planning to ban the importation of scrap copper by the end of next year sparked the rally from copper’s summer lows, but caught many in the industry by surprise.
Investment banks and institutions are now catching up and according to the September survey by FocusEconomics released last week, 8 of the 24 analysts polled upgraded their fourth quarter forecasts compared to projections made the month before.
However, while no one downgraded the outlook for copper consensus forecasts remain well below ruling prices.
Analysts project that prices will average US$5,870 per tonne in Q4 2017 and US$5,844 per tonne in Q4 2018. The lowest forecast for Q4 2017 is US$4,899 per tonne, while the maximum forecast is US$6,674 per tonne. Barclays, Deutsche Bank, JP Morgan and Macquarie all see prices averaging more than 15% below today’s price going into 2018.
The price forecasts for Q4 2017 were raised for nine metals and minerals, including aluminium, lead and iron ore. Tin was the only exception with economics lowering their price expectations for the rest of the year.
Frik has worked as a financial journalist for 15 years covering a variety of industries for several business and consumer publications, including British Airways in-flight magazine, Business Insider, Investment.com, Driving.ca, YCharts, and Business in Vancouver. Frik presented at the Global Mining Summit in Las Vegas, the Salt Lake City Mine Lifecycle Management conference and the Resources Investment Conference in. (DISCLAIMER: Frik Els does not own shares or hold positions in any of the equities he writes about. Nothing written should be viewed as a solicitation to buy or sell any securities.)
