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Why Copper and Freeport-McMoRan Are Getting Battered

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Copper

As we noted in the previous part, copper prices have come off their three-year highs that they hit earlier in September. While several analysts had been warning of a bubble in copper prices, copper defied gravity in August. Plus, the LME 3-month copper contract gained ~7.0% during the month. 

Although September started on a positive note for copper, we’ve seen selling pressure in the last three weeks. In this article, we’ll see what factors have led copper’s downward price action this month.

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Key drivers

China’s copper import data is seen as a leading indicator for the country’s copper demand. China’s unwrought copper imports have been flat for four consecutive months. Lower copper imports from the world’s leading consumer subdued copper market sentiment.

We also saw some moderation in Chinese economic activity last month. China’s fixed asset investment growth slowed to 7.8% between January and August compared to 8.3% in the first seven months of the year. This growth rate was the lowest in 18 years, and the data was worse than expected.

Supply-side issues were a key driver of copper prices in 1Q17 as leading miners including Freeport-McMoRan (FCX), Southern Copper (SCCO), and BHP Billiton (BHP) faced issues at their mines that negatively impacted global copper supply. However, there wasn’t any major supply-side disruption after that.

We also saw a sudden increase in copper inventory this month. Notably, copper inventory has been a key price driver for the last couple of years. In the next article, we’ll see what the recent trend in copper inventory indicates for copper markets (RIO) (TECK).

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