Copper Resumes Downside but Manages to Hold Crucial Levels

On September 25, spot copper closed at $5,098 per metric ton (or MT) on the LME (London Metals Exchange). Copper prices had hit their six-year closing low of $4,888 per MT on August 24.

However, copper prices subsequently rose to $5,400 per MT on September 10. This rally was short-lived and prices corrected thereafter. Year-to-date, copper prices are down ~20%.

The chart above shows the recent trend in spot copper prices. Falling copper prices negatively impact copper producers’ earnings.

This downtrend is not limited to copper alone. Spot aluminum on the LME closed at $1,557 per metric ton on September 25. Aluminum has traded weakly over the last few trading sessions, losing ~4% over the last week. Year-to-date, aluminum prices are down more than 15%.

Copper, like other commodities, depends on supply and demand dynamics. There are two factors at play with respect to copper prices. First, we have had supply disruptions in Chile and Zambia. Chile (ECH), which has been impacted by torrential rains twice this year, was also recently hit by an earthquake. This raised fears that copper supply from the world’s biggest copper mining country could be negatively hit.

Production cuts announced by producers including Freeport-McMoRan (FCX) and Glencore (GLNCY) lifted copper prices momentarily. However, the slide resumed on concerns over Chinese copper demand. As the single largest copper consumer, China drives the global copper industry.

Investors in copper producers such as Turquoise Hill Resources (TRQ) and Teck Resources (TCK) should track Chinese copper demand. We’ll discuss Chinese copper demand indicators in the next two parts of this series.