Commodity Blog

Commodity Prices – Copper

Copper extended its rally today after data on nonfarm payrolls eased concerns for US economy. The report on employment change released today showed much smaller decline of work places than was estimated (54,000 compared to predicted 101,000). December futures for copper delivery advanced $0.0125 (0.4 percent) to $3.508 per pound by 10:24 on COMEX.

Wheat prices advanced today as demand for supplies from the US increased after Russia extended its ban on exports. Prime Minister Vladimir Putin announced yesterday that Russia would extend a grain-export ban till the end of the next harvest. At the same time, US exporters sold 110,000 metric tons of wheat to Egypt and 275,000 tons to other buyers. Global stockpiles may fall to 174.8 million tons by the end of the marketing year on May 31st. December futures for wheat delivery gained $0.1775 (2.5 percent) to $7.315 per bushel at 10:33 on CBoT.

Crude oil fell today as decline of service industries in the US caused speculation that demand may drop. The Institute for Supply Management Purchasing Managers’ Index showed a decrease from 54.3 to 51.5 in August. October delivery for crude oil fell $1.51 (2 percent) to $73.51 per barrel as of 11:53 on NYMEX.

Copper prices jumped today as unexpected growth of pending home sales and improving labor market in the US suggest that demand for the industrial metal may increase. Pending home sales showed a growth by 5.2 percent in July instead of an expected decline. Claims for unemployment benefits fell from 478,000 to 472,000 last week. December futures for copper delivery rose $0.018 (0.5 percent) to $3.4955 per pound as of 13:17 on COMEX.

Gold rallied today on forecast that central banks around the world would keep interest rates at present levels. The European Central Bank decided today to keep the benchmark interest rate at the record low level of 1 percent. The Federal Reserve has kept the US benchmark rate near 0.25 percent since December 2008. December futures for gold delivery gained $5.30 (0.4 percent) to $1,253.40 by 13:46 COMEX.

Copper prices declined today after the report of the Federal Reserve Bank of Philadelphia showed that US manufacturing activity unexpectedly slowed in August. Philadelphia Fed index dropped from 5.1 to -7.7 this month. Median forecast was an increase to 7.1. A figure below 0.0 indicates worsening conditions. December futures for copper delivery slid $0.023 (0.7 percent) to $3.3475 per pound by 10:29 on COMEX.

Philadelphia Fed report, together with an increasing number of unemployment claims, also drove down prices for crude oil. Claims for jobless benefit jumped from 488,000 to 500,000 last week. It was even more frustrating, considering that analysts promised a decline to 478k, not an increase. Signs of economic slowdown suggest that demand for commodities, including copper and oil, may wane. October settlement for crude oil went down $1.34 (1.8 percent) to $75.13 per barrel on ICE.

Copper prices jumped today on speculation that the metal was oversold, considering declining inventories. Prices declined earlier as traders were concerned about slower economic growth in two most significant copper consumers: the US and China. The Federal Reserve said that the US economic growth would be “more modest”. China’s industrial production grew with the slowest pace in 11 months in July.

Worries are still present, but perhaps fears were overdone. LME-monitored inventories were decreasing for five consecutive months, the longest decrease since July 2007. As Matthew Zeman, a trader at LaSalle Futures Group, put it:

On a short-term basis, this market has been oversold. The lower inventory levels will help to keep a lid on things. The market will still be vulnerable if we continue to get more indications that growth is slowing.

September futures for copper delivery went up $0.037 (1.1 percent) to $3.3125 per pound by 11:25 COMEX. The price previously slipped 0.6 percent to $3.255, the lowest level since July 30.

Crude oil declined today for a second day on concerns that slower economic growth in China and the US will damp demand. Year-on-year industrial production expansion in China slowed to 13.4 percent in July, compared to the June growth of 13.7 percent. The report that US inventories of crude oil declined for a second week may support the prices. September delivery for crude oil slipped $1.35 (1.7 percent) to $78.90 per barrel as of 9:57 on NYMEX.

Copper prices also fell on concerns for the global economy. The metal prices slid after the Federal Reserve said that the US economic recovery would be “more modest” and as pace of China’s industrial output growth was slowest in 11 months. Copper also dropped as the dollar surged. September futures for copper delivery went down $0.0705 (2.1 percent) to $3.242 per pound as of 11:22 on COMEX.

Concerns about the global recovery and the recovery in the US pushed gold prices higher today. A decision of the Federal Reserve to keep interest rates at record low levels and speculation that the US government would continue to print money to support economy increased concerns about sustainability of the US economic expansion and drove traders to seek safety, increasing appeal of gold. Previously gold declined as the dollar strengthened. December futures for gold delivery reached $1,207.60 per ounce by 15:12 on COMEX.

Some other commodities, particularly crude oil and copper, reacted much more negatively on pessimistic sentiment across markets. Demand for crude oil depends on the global economic health, and with grim outlook for recovery demand will likely wane. Copper prices were hit not only by news from US, but also but expectations of lower imports in China. Spot price for crude oil was $80.36 per barrel on NYMEX, while copper futures fell $0.0415 cents (1.2 percent) to $3.3125 per pound as of 13:28 on COMEX.

Copper fell today after US non-farm payrolls decreased more than expected, suggesting that the economic recovery in the US is fragile and demand for the metal may wane. US non-farm payrolls dropped by 131,000, compared to the forecast 63,000 decrease. Unemployment rate remained stable at 9.5 percent.

Reports about employment, together with previous bad news from US, makes one think that nation’s economy is far from being stable. That’s bad for copper as the US is the second largest consumer of the industrious metal in the world. China, the biggest copper user, is also experiencing slowdown of economic growth.

September futures for copper delivery slid $0.0125 (0.4 percent) to $3.341 per pound by 11:44 on COMEX. The price touched $3.4105, the highest level in three months, on August 4th and declined 1.5 percent yesterday. Analysts say that the metal may fell to $3.00.

Copper dropped today from its record prices on speculation that demand for the metal would wane as house prices in China will tumble. Chinese government was concerned after house prices jumped 68 percent in the first quarter that soaring prices would create bubble that sooner or later burst, crippling the nation’s economy. The government was already attempting to cool the overheated economy and bring prices down. Now Chinese banking regulators are going to perform stress tests on banks to discover how they would fare in case of a 60% slump of Chinese house prices. Housing market has great influence on copper prices as construction makes up a quarter of copper demand.

Frank McGhee, the head dealer at Integrated Brokerage Services LLC, thinks that “if China wants to signal a slowdown, then the copper rally may have run its course”. Another analyst said that that it’ll be good if annual growth of Chinese demand would be limited by 8 percent.

September futures for copper delivery slid $0.0480 (1.4 percent) to $3.3565 per pound by 11:21 on COMEX. Yesterday, price reached $3.4105, the highest level since April 29th. Delivery for copper in three months dropped $94.50 (1.3 percent) to $7,410.50 per metric ton on LME.

The copper is ending the week with all 5 days being bullish and with the biggest total weekly gain in about 5 months as the stockpiles of the metal continue to fall.

According to the reports on LME, the stockpiles have dropped for 22 consecutive weeks and for the 26th straight day today. As the build-up of the reserves caused a decline copper several months ago, the drop of the inventories spurs the demand from the traders. The analysts see a growth of the demand with staggering supply of the commodity in the future.

The weekly gain of the metal was also spurred by the growth of the real estate sector expectations in United States and the rallying stock market, which increased the eagerness of the market participants to invest in commodities. Pessimistic analysts expect copper to continue in the bullish trend till the end of summer but await some correction afterward.

Spot copper rose from $6,973.00 to $7,031.00 as of 19:55 GMT today. The weekly growth stretches from $6,479.00 or 8.52 percent.

The copper grew at the fastest speed since June 25 today as the markets reacted to the increased building permits that were reported in United States today. Today’s growth was also spurred with a continued decline of the commodity’s stockpiles.

Copper is a major beneficiary of the growing real estate market. For the first time since March, the U.S. building permits showed a growth — from 574,000 to 586,000 (seasonally adjusted annual rate). It surpassed rather pessimistic growth expectations by the market analysts. According to them, any more or less good news from the housing market are going to be helpful for copper.

Copper stockpiles monitored by the London Metal Exchange decreased by 0.8 percent or 3,250 metric tons today. That’s 23rd straight session of decline of the copper stockpiles. Some analysts believe that the copper has left the bearish trend zone and is going to be bullish until the end of the year and for some part of 2011.

Spot copper is currently trading near $6,645.00 per metric ton as of 16:50 GMT after opening at $6,517.00 today. It has gained 1.93 percent during the day — the biggest upward movement since June 25 (3.03 percent).