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Copper Throws Mixed Signals for Markets

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Dec. 19 2018, Updated 3:00 p.m. ET

Copper

Copper prices are seen as an indicator of global economic activity. While copper fell below the psychologically crucial $6,000 per metric level a few times in 2018, it managed to hold that level in the recent market crash. Copper has thrown mixed signals for investors in the past month.

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Inventory

Copper’s inventory levels have fallen in 2018, which reflects strong demand. Last month, Antofagasta (ANTO) and Chinese smelters agreed on lower TC/RCs (treatment and refining charges). TC/RCs generally fall when the concentrate supply is tight. Although lower TC/RCs could also be attributed to rising smelting capacity in China, which leads to higher concentrate demand, copper miners including Freeport-McMoRan (FCX) have pointed to strong underlying demand from China (FXI). In what could be a bearish indicator, earlier in December, Reuters reported that China’s copper delivery premiums have fallen to an 18-month low.

Copper imports

While China’s unwrought copper and copper concentrate imports fell year-over-year last month, the imports have risen on a year-to-date basis. While higher imports are also partially due to China’s ban on scrap imports, the imports are a bullish driver for copper markets.

Copper has been throwing mixed signals for markets. Copper has been one metal where mining companies including Vale (VALE) and BHP Billiton (BHP) have a positive outlook and have looked open to expansion. Given the concerns about China’s economy and the broad-based selling in equity markets, the possibility of copper falling below its 2018 lows can’t be ruled out in the short term.

Next, we’ll discuss Freeport-McMoRan’s outlook.

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