Resurgence is a word synonymous with the ability of an asset or an individual who had recently witnessed the dark darks but in contemporary times has revived its fortunes. Donald Trump is a name which comes to mind. As a candidate for the US President, he was initially frowned and laughed upon. But since his unbelievable victory over the much-favored Hillary Clinton, the global financial markets have taken the decision with a pinch of salt and the realization that anything is possible if a concerned individual is determined and steadfast in his endeavour. While the ability of Trump upon assuming the US Presidential chair is yet to be evaluated, an asset in the commodity market has quietly redefined the landscape of trading. The resurgence of copper is on the way and market practitioners are slowly yielding and shifting towards the popular base metal.
Here‘s its story!
Copper in 2016
As we come to the end of 2016, the story of copper can be linked to the unassuming plot of a Western thriller with rides of indecision and the ability to keep the audience at the edge of the seats awaiting the next development. In hindsight, copper prices had begun the year 2016 at $2.1248 per pound. After falling to the lowest price of $1.9268 per pound, the prices strengthened over the next three months. However, the month of May brought with it a spell of doom, as prices retreated to a low of $2.0305 per pound, declining by 9 percent over the month. Thereafter, besides August, price has steadied and assumed a bullish course till the point of this article. November has been a beneficial month for the long position holders as prices surged ahead by 24 percent, attaining the highest price of $2.7242 per pound on 11 November, the highest since June 2015. While most of the focus has centered on gold and crude oil, copper has quietly stolen the limelight as prices have inclined by 28 percent over the course of the year.
Factors Affecting Copper
The following is a list of factors which have driven the fortunes of the base metal during 2016.
Demand from China: China has been the largest consumer of copper due to its requirement in various sectors aligned with its quest of becoming the fastest growing economy in the world. However, during the early half of the year, copper prices plummeted to low levels, unheard of in recent times, due to its tarnished prospects for growth and demand for the industrial metals. The humongous losses in the equity markets in China added to the woes for the metal. However, during March, copper prices moved back onto bullish territory as China cut banks reserve requirement ratio indicated a slight easing in its monetary policy. Likewise, news of a sudden revival of copper imports from China i.e. an all-time high of 570,000 tons, in April boosted the prices. Encouraging signals from China‘s housing markets and indications of a revival in its factory sector over the summer also provided impetus to the prices.
Strengthening US economy: During February, prices jumped to their highest levels in more than three months as traders renewed hope for a recovery following stronger than expected US economic data and a G20 policymakers meeting. Copper joined rallies in the oil and the share markets as traders dumped fears about a struggling global economy to the back burner. The fourth quarter economy growth was revised up to one percent while the US consumer spending inclined solidly. While a weakening US Dollar inevitably pushes the commodities prices higher since most of it are priced in the greenback, copper also benefitted as USA announced that it would challenge China on exports.
Mine Strikes in Chile: In the world of copper, Chile has been a forefront in producing and exporting copper since time immemorial. Hence, any major disruptions in supply will provide ample boost to prices. Anglo American halted production at a copper mine in El Soldado along with another halt at another mine called Codelco‘s El Teniente. The disruption from the mines was critical as the prices skyrocketed.
Trump‘s Victorious Campaign: While numerous articles have been stated about the effect of Donald Trump‘s victory on gold and crude oil, copper benefitted as it held its biggest weekly rally in 35 years in mid-November. Hopes of enhanced infrastructure spending by Trump lead the metals dragging itself out of the shadows of a years-long bearish market.
Copper has stayed true to its ability as its performance resonates the real picture of the global economy. The global economy has painted a growing canvas in which scores of economies has diluted years of recession and stagnating numbers with stories of reinforcements of a progressive world. Every now and then, certain events like BREXIT will hamper progress but it is safe to say that the global economy has indeed recovered from the woes of years of recession. Copper will inarguably leave a mark in 2016 as a commodity heading the race and saying to the rest – Catch Me If You Can!
Vivek Risal is associated with Mercantile Exchange Nepal Limited in the capacity of Manager in Research and Development Department. He can be contacted at r&[email protected]