By Raul de Frutos
Copper prices continued to make new lows in January. Prices fell below $2 per lb., for the first time since May 2009. Our Copper MMI tracking prices globally fell 5% to 58 points.
Some investors see copper not only as a benchmark for base metal prices, but also as a benchmark for the state of the global economy. Right now, there is not much going in favor of copper. The global economy is having its worst moment since the global recession of 2009, at least from an investor's perspective. Meanwhile, commodity markets continue to slide driven in part by a slump in oil prices.
The combination of lower copper and oil prices is especially hurting some copper producers that also have energy assets such as Freeport-McMoRan. The company is the world's largest copper producer while oil and gas accounts for almost one-sixth of Freeport's revenues. The company's stock price fell 45% just in the first two weeks of January, after it hit a 13-year low in December.
Copper investors are closely watching Chinese economic data, as China is the world's largest consumer of copper. The year started on a weak note after e China's PMI came in at 48.4 in January. The index has been in contraction territory (below 50) since March 2015.
The Copper Lining
On the other hand, copper bulls could find some bright spots in January's data. China is not self-sufficient in its copper requirements, so it imports the metal in large quantities. December's trade data showed that Chinese copper exports increased sharply, rising hopes among copper bulls that the country's copper demand might not be as weak as the current price trend depicts.
Copper import data will be something to watch in the months ahead as it will provide insight on whether the spike seen in December imports was something sustainable or more of a one-time blip.
Better-than-expected copper imports in January could give some support to copper prices, although if China's copper imports start dipping that could spoil investors' sentiment.
Another factor that could have some positive impact on copper prices is the recent dollar weakness. The dollar and dollar denominated commodities are inversely correlated. The Fed not rising rates in March could potentially cause the dollar to weaken in the months ahead. On the other hand, rising rates could trigger more sell-offs in copper and the rest of base metal prices.
What This Means For Metal Buyers
Other than better-than-expected Chinese copper imports in December, there is little going on to expect a turnaround situation in copper markets. While the slump in commodities continues and global markets slide, copper has little upside potential.