As discussed previously, copper prices have broken out from their narrow price channel and are trading comfortably above the $6,000 per metric ton level on the LME (London Metals Exchange). Copper miners including Teck Resources (TECK), Glencore (GLNCY), and Southern Copper (SCCO) have also followed copper higher. In this article, we’ll look at the key factors that are driving the recent strength in copper prices.
The US dollar has shown weakness, which is impacting commodity prices. Since commodities including copper are priced into the US dollar, a weaker dollar bodes well for commodities. A weaker US dollar makes commodities like copper cheaper in other currencies.
China plans to ban imports of some copper scrap grades. Notably, we’ve seen an increase in China’s copper scrap imports this year. Higher scrap imports could also be due to lower copper concentrate supply earlier this year. Notably, the top two copper mines owned by BHP Billiton (BHP) and Freeport-McMoRan (FCX) faced supply disruptions this year, which negatively impacted the copper concentrate supply.
The Chinese government has been taking several measures to address the country’s rising pollution levels. China claims to have shut down some of its outdated steel and aluminum capacity. Furthermore, copper prices were consolidating over the last month, and China’s proposed scrap import ban was just the trigger copper bulls were waiting for.
Having said that, is copper’s recent spike sentimental or will prices stay at higher levels? We’ll find out in the next article.