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Why Copper Has Fallen from Its 2017 Highs

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Copper

Copper prices have come off their 2017 highs. Copper, which closed almost flat last month, has lost 3.3% in December. In this part, we’ll see why copper prices have shown weakness recently.

Demand concerns

In the past few months, there have been concerns about Chinese copper demand (FCX) (GLEN-L). China’s copper demand indicators, including fixed asset investment and real estate investment, have shown signs of moderation after a strong 1H17. China’s copper import data disappointed markets last month. However, copper bulls largely ignored the red flags about Chinese copper demand. Copper bulls pointed to the looming supply-side led deficit as copper’s bullish driver.

We saw copper markets get a little excited about the expected rise in the demand for electric vehicles. Although we could see growth in electric vehicle sales, it would come from a much lower base. Also, the growth could be gradual. We won’t exactly see an immediate rise in copper demand because of vehicle electrification.

Supply-side issues

Some of the factors that fueled copper’s 2017 rally where lower fundamentals than initially perceived by the markets. For instance, we saw a sharp rise in copper prices after China announced that it would ban certain grades of copper imports (ANTO) (FM). As we noted in Freeport and Copper: is a Correction in the Cards?, copper scrap could still be processed somewhere else. The scrap isn’t going out of the supply chain.

Next, we’ll see what’s fueling the recent sell-off in copper prices (BHP).

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