You hear about what’s going on with gold and silver almost every day, but what about copper?

You may have heard that copper has been in a bit of a crisis lately, and it looks like this won’t be letting up anytime soon.

In the past year, the copper market has been hit by strikes in South America that have had a significant impact on the market.

These strikes don’t seem like they’ll be ending anytime soon and will instead continue widening copper’s global deficit.

Then you have the lack of optimism that crept up on the market in early 2017 when it realized that President Donald Trump’s infrastructure plans would take longer than originally anticipated.

Copper had an upswing at the end of 2016 when Trump won the U.S. presidential election in November because of the candidate’s obvious stance on the metal and the speculation that copper would be a big part of the president-elect’s $500 billion infrastructure plans, which would ultimately increase copper’s demand.

Amid these concerns, copper retreated by as much as 10%.

Yet another key component that’s affecting copper is China’s supply.

China accounts for about 45% of the global demand for copper — it’s also the world’s biggest user and producer of refined copper.

China making up nearly half of the world’s copper consumption, along with its faster than expected economic growth and increase in industrial production, will help shift the metal’s prices higher.

China is having more of an effect on copper and its prices than U.S. infrastructure plans, which seemed like the light at the end of the tunnel back when first Trump announced them.

Analysts and investors thought for sure that these plans would get copper out of the slump it’s been in for the past few years. While yes, Trump might not be the leading driving force in the rebound of copper prices, there’s another factor that’s playing a significant role in copper prices — China.

Economist Amy Li at National Australia Bank in Melbourne told Reuters: “We will most likely see more disruptions later this year … but they are not to be as severe, and the price impacts should be largely priced in.”

Recently, after polling analysts, Reuters more than doubled its global copper deficit estimates. Initially estimating 17,000 tonnes after the previous poll in May, Reuters is now estimating a deficit of 44,000 tonnes.

Despite the deficit that’s happening right now, analysts are expecting the situation to revert within the next year and for the market to even have a surplus of 74,000 tonnes.

In July, copper saw its delivery go up by 4.1% to $2.8405 — some of the highest levels experienced by copper since May 2015.

And in October, Barclays noted: “For the first weeks of October, conditions look right for the LME copper price to stabilise. The depletion of domestic refined inventory within China, coupled with supportive import arbitrage conditions, provides a compelling case for short-term fundamental support.”

According to Reuters, three-month copper on the LME was up 0.4% at $6,509 a tonne, which had the metal ending the July through September timeframe with a 9.2% gain, making it the fifth quarterly increase in copper.

Copper has been in a crisis. It was expected to come out of its crisis through new U.S. infrastructure plans. But when those plans started to seem like they’d never come to fruition, markets were left hopeless once again.

However, fast-paced growth from China and the increase of global infrastructure has sparked an upswing in copper. And if we continue to see these factors, we could very well see copper in a much better position next year.

Until next time,

Jennifer Clark
Pro Trader Today