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Why Copper Bears Have Gone into Hibernation

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Oct. 11 2020, Updated 12:07 p.m. ET

Copper bears

Copper has lagged behind other base metals for most of 2017. Copper’s underperformance of aluminum was surprising, given the projected deficit in copper markets. As for aluminum, the lightweight metal’s supply is expected to exceed demand in 2017, according to Alcoa (AA).

However, after being surrounded by bearish sentiment in 2Q17, copper seems to be attracting bulls this month. The metal closed above the psychologically crucial $6,000-per-metric-ton mark last week. Copper has traded below $6,000 since March 1, 2017. Based on its July 21 closing price, copper is up 9.7% this year. In comparison, aluminum prices are up 13.7%. Although aluminum is still outperforming copper, copper has managed to close some of the gap this month. Let’s see what’s driving the recent uptrend in copper prices.

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Key drivers

A weaker US dollar generally bodes well for copper prices (FCX) (SCCO). Copper, like most other commodities, is negatively correlated with the US dollar (UUP). As the US dollar has weakened against a basket of currencies, copper prices have received a boost. China’s copper demand indicators also seem to be supporting copper prices (GLNCY). Concerns over Chinese copper demand as new copper mines have been coming online has put pressure on copper prices for the last couple of years.

However, recent Chinese economic data has improved copper market sentiment. In the next article, we’ll look at some of China’s copper demand indicators.

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