Copper has been on a downtrend for nearly two months. The goodwill generated by supply cuts by major miners (XME) such as Freeport-McMoRan (FCX) and Glencore (GLNCY) failed to last beyond a month, and copper again resumed its downtrend.
It’s important to note that there’s no industrywide coordinated effort to cut copper supplies. Producers such as BHP Billiton (BHP), Rio Tinto (RIO), and Southern Copper (SCCO) are going ahead with their pre-planned production programs. These companies are also not holding back on their expansion plans.
You can read Why Have Copper Production Cuts Failed to Have a Material Impact? to explore why the production cuts failed to lift copper prices for long.
Copper holds at $4,500
Copper has managed to hold on to the psychologically crucial $4,500 level. The LME (London Metals Exchange) three-month copper contract closed at $4,567 on December 8, down ~0.7% from its previous day’s close. Last week, copper ended its seven-week losing streak and closed with marginal gains. Nonetheless, copper is still down by more than a quarter this year.
Outlook for copper
According to Citi, copper is “oversold,” citing the huge short buildup. There were reports a few days ago that the copper supply from Chile could be negatively impacted due to the drought in that country. However, such news has failed to deter copper bears who have continued to short copper. Shorting copper has become a proxy on the Chinese slowdown.
Economic data points from China have also not disappointed copper bears. Earlier this month, the official Chinese PMI (Purchasing Managers’ Index) fell to a three-year low. Now Chinese trade data have provided another reason to cheer for traders who hold bearish views on copper.