Copper’s Rebound: Just What The Doctor Ordered For The Economy?

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Dr. Felipe Larrain, Chile’s finance minister, made the call three months ago, but the market ignored him then and prices sank. This week, as oil’s rally became supercharged and gold showed surprising strength after a Fed rate hike, the Harvard-educated economist issued another forecast. And this time, the copper market moved as willed by Dr. Larrain.

With three sessions into October, prices for the red metal have posted their best monthly start since June, gaining nearly 2 percent. Now, some technical chartists think cooper futures on New York’s COMEX metals division have a chance of hitting $3 per lb soon, which Larrain said was his average target for the year.

Copper’s Rebound: Just What The Doctor Ordered For The Economy?

Copper Daily Chart

Copper hit a 2018 high of $3.297 on June 7. From there, it fell 21 percent before recovering about 9 percent from mid-September.

A ‘Strong Buy’

binary-news’s daily technical outlook has a “Strong Buy” on the metal, with the firmest sell signal only emerging when it moves beyond the 200-day moving average of $2.979—or virtually $3. With Wednesday’s settlement of $2.83, COMEX copper’s most-active December contract is just over the 100-day moving average.

It is also about 6 percent away—not too far, yet not too near—from achieving the target set by Dr. Larrian. Interestingly, copper, in its own right, is also a “doctor”, a moniker conferred on the metal for its “ability” to foretell economic health. Other than oil, no industrial commodity can boast a relationship as close with the global economy as this infrastructure material, which is used in everything from home building to electronic circuitry. Highs and lows in copper prices tend to reflect sound and poor conditions respectively in the world economy.

Can Dr. Copper Sustain Its Rebound?

The biggest question for Dr. Copper now is if it can sustain its recent price rebound against a backdrop where China, the world’s largest metals consumer, is locked in a bitter trade war with the United States, one of its biggest scrap copper suppliers.

Copper’s role in the trade war is particularly important as China said in August it would target $16 billion worth of US imports, including scrap metal, with duties of 25 percent to retaliate against a similar move by Washington. Since then, more than $260 billion of bilateral trade has come under tariffs, with neither country looking ready to make concessions.

That aside, Larrain’s price target may stumble upon another problem: in commodities, supply-demand is king, and forecasts by officials, regardless of their credentials, can go unheeded without the right drivers. Copper is Chile’s top export and Larrain’s original $3.12 call in July, before it was revised downward, came when the metal hovered around $2.80 a lb—and can hardly be viewed as unbiased. A Bloomberg report from July estimated that for every cent increase in the price of copper over a year, the government in Santiago would earn an extra $60 million in revenue.

Backing For $3 Target

Despite this, ADM Investor Services, the brokerage arm of global commodities merchant Archer Daniels Midland, said in its outlook on copper this week that it was backing Larrian’s forecast.

ADMIS described copper as a market in “consolidation building (but) with a bullish bias” and cited expanding global demand for refined copper as a strong support base. It added:

“Another bullish development/forecast this week surfaced from the Chilean Finance Minister, who suggested 2019 would bring a $3 per pound copper price.”

Mike Seery of Seery Futures in Plainfield, Illinois, concurs, saying a strong U.S. economy was bringing back demand for copper and propelling the metal’s prices. He said COMEX copper’s next target could be its September 21 high of $2.8710. “Prices could trade up to the $3 level in the coming weeks ahead,” he added.

Some think copper’s surge this week may be fund managers’ way of getting the industrial metal into some of the commodities action that has swept Brent crude oil to four-year highs above $85 per barrel and gold past the key $1,200 an ounce level. As Reuters metals columnist Andy Holmes wrote in his September 26 post:

“The oil market is positively bubbling away, while Iron ore and steel prices remain surprisingly resilient to the prospect of a full-blown trade war between the world’s two biggest economies.”

Emerging Markets’ Health Indicator

But on a level more related to its role with the economy, copper’s recovery will help ease emerging markets’ yearning for encouraging indicators of growth, following the worrisome currency crises of Turkey and Argentina.

“What happens to the price of copper matters to emerging markets, because the two are tightly linked,” Colby Smith, columnist at the Financial Times, wrote on Tuesday. She added:

“Emerging economies dominate the list of the world’s largest copper producers, so this relationship should come as no surprise. Chile, Peru and China lead the pack, alongside Congo, Zambia, Mexico and Indonesia.”

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