Copper prices have shown strength in the last few weeks. Copper started 2017 on a positive note amid supply-side concerns. Some of the leading copper mines including BHP Billiton’s (BHP) Escondida mine and Freeport-McMoRan’s (FCX) Grasberg mine faced issues in 1Q17. Southern Copper (SCCO) also faced a brief labor impasse in Peru (ECH). Copper managed to trade above $6,000 per metric ton in 1Q17 as markets started to factor a deficit led by the supply side in 2017.
However, copper came under pressure in 2Q17 as the supply-side issued started to wane and concerns about Chinese demand emerged. Copper was holding on to the $5,500 per metric ton price level, but it breached the psychologically crucial level on May 8 after Chinese copper import data disappointed markets. We should remember that since China is the largest copper consumer, copper tends to be sensitive to Chinese economic data. Copper was still under pressure in May and early June amid rising inventories and demand-side concerns. There wasn’t a major supply-side issue in 2Q17.
China’s economic data
Recently, China’s better-than-expected June manufacturing PMI (purchasing managers’ index) boosted copper prices. The LME (London Metals Exchange) copper inventory fell in June after rising steeply the previous month. Notably, we saw copper prices react to copper inventories over the last few quarters.
While copper (RIO) managed to close 1H17 with significant gains, there are concerns about whether higher prices are sustainable. In the next part, we’ll look at different factors that could drive copper prices in 2H17.