Monthly Copper Price Outlook: Premiums Fall, Volatility Ahead

by: MetalMiner

By Taras Berezowsky

This month's copper price index jumped by four points from 86 to 90, a 4.7 percent increase, largely on the back of improved copper LME prices, which feed into U.S. copper producer prices. The stronger price trend also received support from improved pricing throughout Asia, led by China. We don't, however, believe the upward price pull reflects improved demand per se; rather, prices tend to follow short-term sentiment.

chart of historical copper prices trends september 2013

Already, copper prices have dropped from their mid-August highs as Chinese warehouse inventories have stabilized at 400,000 tons. In addition, copper premiums paid in China have also fallen (rising premiums often lead prices). "The reality is that short-term positive news impacts day-to-day copper prices," said Lisa Reisman, managing editor of MetalMiner. "With positive ISM data on the U.S. markets and improved manufacturing activity in Europe and China, the markets jumped, so we still see quite a bit of short-term volatility." Our own forecast models highlight this volatility over the coming eight weeks.

Here's the breakdown of the leading price drivers of the monthly copper index:

After dropping the previous month, the cash price of primary Japanese copper prices rose 6.2 percent. The three-month price of copper rose 4.6 percent over the past month to $7,270 per metric ton, the second straight month of gains. At $7,094 per metric ton, the cash price of primary copper finished the month on the LME 4.3 percent higher.

For the second month in a row, the price of Chinese copper wire increased, rising 4.1 percent over the past month. The Chinese copper cash price increased 3.8 percent. The price of Chinese bright copper scrap rose 3.6 percent after falling the previous month. The price of U.S. copper producer grade 110 rose 2.9 percent. The price of U.S. copper producer grade 102 grew 2.8 percent. The price of Korean copper strip increased only marginally.

Note: The Copper MMI® collects and weights 12 global copper metal price points to provide a unique view into copper price trends over a 30-day period.