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Decline in copper prices causing confusion

Publication Date: 21 May 2018 - By Market Mogul By Market Mogul
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Macro Commodity Metals and Mining

A rising tide lifts all boats, or so it used to be said. Despite the worldwide rally in commodities prices, which has seen oil increase in value by nearly 20% over the past year and which saw aluminium nearly reach $3,000, one of the most widely traded metals is falling in price. Copper, used in the construction of a mind-boggling amount of things, including pipes and electric wiring, has fallen over 6.8% in price since the beginning of the year.

Part of the lacklustre performance of the metal may be the disappointing construction figures coming out of China. For the period from January-April 2018 Chinese construction only grew by 7%, beneath forecasts which expected growth to be around 7.5%. These figures may point to a slowdown caused by the trade war ramping up between the US and China.

The direction of copper’s price is confounding market watchers, as when oil goes up it tends to drag other commodities with it. A difference of 24%, the price of oil went up by 18% while copper decreased by 6%, is among the sharpest divides between the two essential commodities seen in the past two decades. Indeed, given the close connection between the two, some investors trade both in a single basket.

Analysts are trying to get a handle on the two differing indicators. Danske Bank analyst Jens Pedersen stated:

“Right now we are in a bit of a vacuum, trying to figure out the direction of global growth.”

Copper was trading $6,838 on the London Metal Exchange for a tonne to be delivered immediately, while some futures prices have broken the $7,000 mark. The price of steel has fallen recently as well, down around 8%. However, those declines came after protectionist policies were introduced by Donald Trump, and amount only to a price more in-line with what they were at the start of the year.

This post appeared first on The Market Mogul.

Disclosure:

I have no positions in any of the securities referenced in the contribution

I do not use any non-public, material information in this contribution

To the best of my knowledge, the views expressed in this contribution comply with UK law

I agree with the terms and conditions of ReachX

This contribution is for informational purpose and does not constitute investment advice nor is it an offer to sell or buy, nor is it a recommendation for any security.

Market Mogul

 

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