Weekly Commodities Wrap: Copper Rally Continues, Now +16% In 2017
Copper: Chinese Imports Fuel Fresh Rally
Copper prices surged to fresh highs again this week, marking their highest levels in nearly four years as a combination of factors propelled the red metal higher. Firstly, reports of a boom in Chinese imports fuelled a positive reaction. Chinese imports of copper rose 8.3% in July, showing a year over year increase, though cargoes showed declines of 15% from a year ago, over the first seven months of 2017. Copper deliveries in September jumped to 2.9455 per pound, up a further 1% from last week’s close and marking the highest levels since mid-December 2014.
After falling over 50% to six-year lows in January of last year, copper has since put in a 16% rally this year. Shipments of copper concentrate remain at the same levels in July at 2.2% year over year. Adding further support for the metal is the reported extension of the workers’ strike at the Grasberg mine in Indonesia run by Freeport McMoRan. The strike has now been extended for a fourth consecutive month to end in August though traders are wary of the likelihood of a further extension.
The decline in the US Dollar over the year has been particularly helpful for copper demand also which remained firm this week despite a small recovery rally. Concerns about inflation in the US are fuelling a repricing of the Fed funds rate path over the remainder of the year while political uncertainty around Trump’s policy agenda is also weighing on the Greenback.
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After breaking out above the former 2017 high, the expansion in copper has taken price up to challenge key resistance at the confluent area between the 2015 swing high and the bearish long term, trend line from 2011 highs. This is a key area for the price with a break here signalling the room for further appreciation. If copper prices fall back from here the prior 2017 high around 2.760 should provide support with the rising short-term channel base coming in around that area also.
Iron ore: Steel Industry Rally Keeps Iron Bid
Iron Ore prices surged higher again this week, tracking the broader move in the metals complex, with the benchmark index hitting its highest levels since April. The main driver behind the continued recovery in iron is the Chinese steel industry which has been booming over the last few months as excess capacity removal and restocking at mills has fuelled a surge in Iron prices. Beijing has ordered that steel producer in four northern provinces to reduce output this winter in a bid to curb air pollution. Consumers have been boosting their purchases ahead of the production curbs.
Chinese steel production is up 4.6% over the first half of 2017 leading to a rise in iron purchases, which is a key ingredient in steel making. JP Morgan say that “With Chinese steel margins at multiyear highs, iron ore demand could continue to surprise”
The rally in iron ore is developing sharply as prices continue to plough through levels of resistance. Prior swing lows of the last rally in price provide staggered support as the recovery extends.
Aluminium: Chinese Government Crackdown Fuels Further Demand
Aluminium prices also exploded higher this week, moving up to their highest level in three years. Efforts by the Chinese government to crack down on illegal production and pollution capacity has fuelled a boom in demand for registered capacity.
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The rally in aluminium prices has taken price up to challenge key resistance situated at the 2014 lows where there is a ledge of strong structural resistance. This is a key zone for the price with a break here signalling a further extension of the bullish channel that has run since last year. The next key upside objective will be a test of the 2015 closing high around 3.353.
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