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Is $4,500 per Ton the New Normal for Copper Prices?

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Nov. 27 2015, Published 2:16 p.m. ET

Copper prices

Copper prices resumed their downside in November after remaining relatively strong in October. On November 26, the LME (London Metals Exchange) three-month copper contract closed at $4,650 per metric ton, rising more than 2.5% from the previous day’s closing. Nonetheless, so far in November, the LME 3M copper contract has fallen more than 9% and joined the ranks of other metals—including steel, iron ore, and aluminum—hitting new 2015 lows.

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Latest round of correction

The graph above shows the recent movement in copper prices. Copper prices have regularly flirted with the $4,500 per metric ton level this month. In the previous correction in copper prices this year, the $5,000 level acted as a crucial support for copper prices. Copper did go below $5,000 per ton in August and then again at the end of September. However, the LME the three-month copper contract closed below $5,000 per ton only thrice in August and twice in September. But then prices bounced back sharply after that.

In the recent leg of copper’s correction, the $5,000 level seems to have lost its relevance. The LME three-month copper contract has now closed below $5,000 per ton for 15 consecutive trading sessions.

Copper producers including BHP Billiton (BHP), Freeport-McMoRan (FCX), Rio Tinto (RIO), and Glencore (GLNCY) are negatively affected by lower copper prices. Currently, Freeport-McMoRan forms ~1.8% of the Materials Select Sector SPDR ETF (XLB).

What’s driving copper lower?

The big question is what’s driving copper prices lower? One thing, of course, is the negative global sentiment around base metals. LME trading is dominated by financial market participants who seem to be getting bearish over commodities. But then, market sentiments are based on available indicators and other data points. In the next parts of this series, we’ll explore the key factors that are driving down copper prices.

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