Copper Technical Outlook

Copper got a bit of press attention recently with headlines of a plunge in price. This was in early January and I hadn't looked at the copper chart for a few days and I was gobsmacked when I did. A plunge they say?! What a load of baloney!! If that was a plunge then they are in for a big shock later this year if my analysis is correct.

But let's not get ahead of ourselves. Let's start with the small picture and then come back to the big picture which will reveal the likely shock in store.

Copper Daily Chart

The recent low was a "three strikes and you're out" low consisting of three consecutive lower lows. This low was also accompanied by triple bullish divergences on the Relative Strength Indicator (RSI) and Stochastic indicator. This generally leads to a significant rise and while price has risen from that low the nature of the rise is nothing to rave about.

Price has so far failed to take out the January 2015 high at US$2.65 which is denoted by the lowest horizontal line. Taking this into consideration, I believe price may be headed for a fourth lower low which is also accompanied by quadruple bullish divergences on the same lower indicators. That occurring really should lead to a substantial rally. Let's see.

The Bollinger Bands show price bouncing up to the upper band and perhaps one last move back to the lower band is in store before a decent rally takes place.

Other points of resistance are denoted by the higher horizontal lines which stem from the December 2014 low and December 2014 high and I favour any coming rally to take out these levels.

Now let's skip to the monthly chart to begin examining the bigger picture.

Copper Monthly Chart

The RSI and Stochastic indicator are both in oversold territory so a rally should be on the cards shortly. However, both these indicators have readings showing new lows so any rally from here is likely to be a bear market rally. I would like to see the final low be accompanied by bullish divergences on the lower indicators.

I have drawn an Andrew's Pitchfork which shows price trending down within the upper channel of this bearish pitchfork. If a rally is to take place soon then I am looking for price to test the upper channel line. And considering I expect a bear rally only then price should be rejected at this upper trend line.

So where is the final low likely to be?

I have drawn a green highlighted circle which shows where price exploded higher in a parabolic move. This area is at the 2008/09 lows of US$1.27. Price plunged into that low and them immediately launched higher in explosive style. Price often eventually corrects to these areas and I favour exactly that to play out here.

I have added Fibonacci retracement levels of the move up from 2001 low at US$0.60 to the all time high in 2011 at US$4.65. I am looking for a deep retracement that closes in on the 88.6% level at US$1.06 which would see price clipping the zone whereby price launched higher parabolic style.

Price putting in a low there around mid 2016 would also be at support from the middle trend line of the Andrew's Pitchfork.

Let's now look at the yearly chart to get another perspective.

Copper Yearly Chart

The recent high in 2011 showed a bearish divergence on the RSI and Stochastic indicator. These indicators now appear to be trending down and not looking particularly promising for the bulls.

I have added the same Fibonacci retracement levels from the monthly chart just to give a different perspective.

I have also added a Fibonacci Fan which shows the 2008/09 low was around support given from the 76.4% angle. I am looking for the next major low to clip the 88.6% angle. Time will tell.

If I am reading this correctly, then a massive 5 point broadening top is in play and price is now headed down to make a point 4 low. In this scenario, the 2006 high was point 1, the 2008/09 low point 2, the 2011 high point 3. If we do indeed get a point 4 low then I expect price to once again explode to new all time highs over the coming years as price eventually puts in the point 5 high.

And I'd like to see the final point 5 high be accompanied by triple bearish divergences in the lower indicators.

So while the move down in early January garnered some headlines, it really wasn't a major plunge. The real plunge is still to come. And expect much bigger headlines to come with it!

Author: Austin Galt

New China credit policy to hit copper imports in Shanghai trade zone

(Reuters) - Trading companies operating in Shanghai's free trade zone are likely to cut back on using copper imports as a financing tool as they are now allowed to borrow from overseas banks more freely, trading sources said.

 

Traders said the reduction would further hit China's imports of copper, which dropped off after Chinese banks tightened credit in the second half of last year amid probes of an alleged metal financing scam. 

 

More than 50 percent of China's refined copper imports in 2012-2013 were linked to financing deals, according to traders.

 

 

The refined copper imports still hit a record in 2014 due to increased term shipments and state purchases, but weak spot buys cut the inflows by more than 9 percent in the second half from the first half. 

 

China's central bank (www.pbc.gov.cn) said on Thursday that companies in the Shanghai free trade zone would now be allowed freer access to financing from abroad.

 

"We used copper trade for transferring funds in and out of Shanghai. Now we don't need copper any more because we can transfer money directly to and from our subsidiary," said an executive at an Asian trading house with a subsidiary operating in the trade zone.

 

The executive said he expected bonded copper stocks in the zone to fall because of fewer financing deals. He declined to be named because he was not authorized to talk to media.

 

Last year's drop-off in China's copper imports in the second-half of the year was a drag on the metal's prices , which fell about a quarter by the end of January from a five-month peak hit in July.

 

Many metal-trading companies moved into the zone looking for a freer trading environment after Beijing started it up in 2013 to try and gradually open the Chinese market.

 

Like importers outside the zone, these traders imported copper, nickel and zinc , storing the metals in bonded warehouses as collateral for cheaper short-term loans from foreign banks.

 

 

U.S. dollar loans from Hong Kong banks are charged annual interest rates of about 1.5-2 percent, compared to more than 5 percent for yuan loans in the domestic market, said the Asian trading house executive.

 

More loans from aboard would cut demand for yuan loans in the China's domestic market, which could force Chinese banks to lower lending rates, said a trader at a state-owned trading company operating in the zone.

Will LME Copper Cheer up during Chinese New Year Like Years Past?

Copper prices on the London Metal Exchange (LME) usually trend up during the Chinese New Year holiday. Will the same occur during the upcoming 2015 Chinese New Year holiday in mid-February?

Analysts interviewed by SMM list the major events that will affect LME copper during the holiday:

US Data and US Dollar Index 

The US dollar index climbed to a more than 11-year high lately. With the US housing starts, PPI, and existing home sales for January to be released during the holiday, the movements of US dollar index will largely influence LME copper prices.

Crude Oil

Crude oil prices experienced intensified volatility. Crude futures rebounded after hitting an over 5-year low on January 29, with LME copper following up. 

Greek Debt Issue

The Greek debt issue may be the greatest uncertainty, as Eurogroup will discuss the conditions for extending bailouts to Greece at the meeting scheduled for 16 February – just before the holiday. And the result from the meeting may magnify market movements. 

Briefing on China Economic Performance 

There will be a briefing on China’s economic performance at the press conference to be held by the State Council Information Office February 20, which may send signals about olicies to be adopted after the holiday. 

“Copper consumption is often the weak around the Chinese New Year holiday, with inventories both at home and aboard set for rises, however, expectation for more stimulus policies may probably offer some support to prices,” an analyst from Minmetals Futures told SMM. 

Commerzbank: Unexpectedly Tight Market Should Help Copper Recover

Despite falling copper prices and rising inventories, Commerzbank (ETR:CBK) is suggesting that the market for the red metal may not be as oversupplied as many believe.

In a commodity research note put out on Friday, the firm admits that copper prices fell at the end of last month to five-and-a-half-year lows on the back of pressure from falling oil prices, concern over an economic slowdown in China, rising inventories and pressure from “speculative financial investors.”

But despite all that, Commerzbank is predicting that an “unexpectedly tight market” could help copper recover — “perhaps fairly strongly given the latest price slide.”

To be sure, since the end of last year inventories on the Shanghai Futures Exchange have gone up by 55 percent, to 137,000 tonnes, while inventories on the London Metal Exchange (LME) have risen over 70 percent, to 285,000 tonnes.

On top of that, Commerzbank suggests that the red metal has been “facing headwind” from financial investors, with money managers betting on copper prices to fall on the COMEX for almost the past five months, and net long positions at their lowest since last July on the LME.

However, Commerzbank believes that the situation might not be as dire as it seems.

“In our opinion, copper has now been oversold and many risks are already priced in,” the firm states in its report. “Any shift in sentiment among speculative financial investors would no doubt contribute to significantly rising copper prices.”

Commerzbank identifies several points to support its case:

•Market tighter than it looks — According to data from the International Copper Study Group (ICSG), the global copper market was in a “seasonally adjusted deficit of 532,000 [tonnes]” for the first 10 months of last year. The organization also reported tight supplies of high-grade copper scrap.

•Surplus predictions optimistic — While the ICSG is predicting a surplus, Commerzbank isn’t so sure. It notes in its report that wage negotiations are set to take place for mineworkers in Chile, the world’s largest copper producer, and that production could be curbed if strikes occur. Furthermore, the firm points out that Codelco and Freeport-McMoRan (NYSE:FCX9) have cut investments due to low prices for the red metal, and suggests that “hardly any new projects are likely to be pushed forward at the current low prices.”

•Is Chinese demand really falling? — Despite slower economic growth, Commerzbank sees market watchers anticipating stimulus measures from China’s government. For example, as others have previously pointed out10, the country recently announced an investment of roughly $70 billion in electrical infrastructure, and that will require plenty of copper. Beyond that, Commerzbank believes that current low prices could spur demand as China’s State Reserve Bureau could take advantage of the situation to buy up copper.
Of course, Commerzbank isn’t the only entity to be making such arguments as of late. Ian Parkinson11 of GMP Securities has also said that projections for a surplus could be optimistic, and that current prices are not high enough to incentivize new production. Certainly, that could be problematic down the road.

Similarly, Lawrence Roulston12 of Resource Opportunities has admonished investors not to get hung up on short-term copper prices, and has suggested that worries of a slowdown in China could be overstated.

All in all, Commerzbank sees the “current pessimism as exaggerated” for copper, and anticipates copper rising to $6,500 per tonne by the end of 2015.

India overtook U.S. as buyer of Chilean copper in 2014

(Reuters) - India overtook the United States to become the fourth-largest overall importer of copper from Chile in 2014, according to figures published by the Andean country's state copper commission Cochilco this week.

The world's top producer, Chile exported a seven-year high of 5.66 million tonnes of the base metal, used in construction, last year. Total production was 5.78 million tonnes, Cochilco said last week.

The largest buyer by far is China, which despite a cooling property market still took around 2.2 million tonnes, or 39 percent of Chile's copper exports.

Asian buyers accounted for the top four destinations of Chilean copper last year, with Japan and South Korea placing second and third respectively.

Sales of mostly bulk copper to India are rising fast as its nascent economy grows. It was the first time India ranked above the United States since 2010, as far back as Cochilco publishes the data.

Chile copper exports by top destination (thousands of tonnes)

Destination 2010 2011 2012 2013 2014

China 1785 1649 1648 2095 2193

Japan 661 697 698 720 791

South Korea 398 379 376 423 472

India 220 218 339 298 387

USA 228 315 372 436 299

Total 5442 5070 5233 5590 5662

Speculators hike bearish copper bets as mood darkens - CFTC

(Reuters) - Hedge funds and money managers increased their bearish positions in copper futures and options to a four-month high and raised their bullish bets in gold to their highest in just over two years in the week to Jan. 27, U.S. Commodity Futures Trading Commission (CFTC) data showed on Friday.

In silver , they increased their net long by 6,539 lots to 40,164, the highest since July last year.

Hedge fund and other speculative investors increased their net long in bullion by 21,960 contracts to 167,693, the most since late November 2012, while in copper, they increased their net short by 4,970 to 12,976, the highest since early October last year.

The higher net short in copper may leave the market vulnerable to a short-covering rally if any positive macroeconomic news comes out of China, the world's top consumer and producer, after the weeks-long selling that has wiped 16 percent off the value of copper since the start of the year.

While some traders say the selling has been overdone, many point to slowing demand from China as the reason to reduce exposure for now. March copper futures on COMEX hit fresh 5-1/2-year lows on Monday.

In stark contrast, bullion has been on a tear as the oil and base metals rout and the euro-zone instability have reignited its appeal to investors even as the dollar remains strong and the U.S. Federal Reserve reins in its years-long stimulus program.

Scotiabank: Copper 'likely oversold'

Not surprisingly the Commodity Price Index compiled by Scotiabank plunged in December to levels last seen during the global financial crisis.

The index was down over 10% compared to November and 15.4% year on year which the bank ascribes to "a fight for market share in international oil and iron ore markets as well as general unease over lacklustre global economic conditions and an almost ‘deflationary’ environment."

Apart from iron ore and oil where a market glut explains most of the downside, bellwether copper has been one of the hardest hit commodities.

In New York trade on Friday copper futures advanced nearly 2% on the back of a huge rally in oil and a comeback in the gold price, but at $2.50 a pound remains near mid-2009 lows.

Patricia Mohr, Scotiabank economist and commodity specialist, points out that even today's price "yields a slight 10% profit margin over average world breakeven costs including depreciation" and that the red metal has likely been oversold.

Copper has likely been ‘over-sold’, given the fifth-highest imports into China on record in December, new fiscal stimulus by Beijing to spur the economy (speeding up spending on 300 infrastructure projects) and a planned 24% increase in capital spending by the State Electricity Grid (likely geared towards copper cable).

Mining companies have recently cut projected output for 2015 by 300,000 tonnes (Rio Tinto at Kennecott, BHP Billiton at Escondida and Glencore at Alumbrera), helping to trim an expected surplus this year to a modest 250,000 tonnes.

Chile cuts 2015 average copper price forecast to $2.85/lb

 Chilean state copper commission Cochilco cut its forecast on Thursday for 2015 average copper prices to $2.85 per pound, from a prior $3.00 estimate, amid a collapse in commodities prices, a strengthening U.S. dollar, and worries about top consumer China.

It also forecast average copper prices of $2.80 per pound in 2016.

Prices for the industrial metal have been hovering near 5-1/2 year lows. Concerns about global economic growth and demand for metals in China, which accounts for 40 percent of global refined copper demand, have kept the pressure on prices.

"The forecast for copper prices this year assumes a recovery in the copper market starting in the second half of the year once prices find an equilibrium, uncertainty about China is dispelled and investors adjust their risk aversion," Cochilco said.

Top copper exporter Chile is expected to produce 6 million tonnes of copper in 2015, said Cochilco, who had previously forecast output of 6.23 million tonnes for the year.

That compares to the 5.78 million tonnes produced in 2014, according to data published earlier in the day by the government's INE statistics agency. 

Cochilco also forecast a surplus in the global copper market of 275,000 tonnes in 2015 and 404,000 tonnes in 2016.

Copper will reach to $10,000 per tonne, says Simon Hunt

After a small hike, the price of the commodity is expected to decline, it might even slump below 2,000 dollars per tonne by 2017. Simon Hunt, a global copper analyst as well as economist stated that, the price of copper will stabilize in the second quarter of the year, and from the beginning of third quarter, the price of the commodity will start to hike and there is also a chance that the price of the commodity might reach to a record of 10,000 dollars per tonne by the end of 2015 or by the  beginning of 2016, and then the commodity will begin its downward journey again.

He was speaking at the MCC Chamber of Commerce and Industry. He forecast that, the price of copper might decline even lower to 2,000 dollars per tonne by the year 2017. When he was asked about the condition of other metals he stated that, all the other metals are likely to share the similar fate, one way or the other, except for gold .

The value of copper has been declining, and is staying at the present around 5,000-5,500 dollars per tonne. According to the reports, even though the global market is facing a supply glut at the moment, the supply outlook for 2015, has been reduced from 400,000 tonnes to 100,000 tonnes. Hunt expects that, the global market will grow on a smaller pace in the 2015, but he still isn't sure about its effect in India.

Morgan Stanley forecast 24 percent hike in copper price

The bank, which is based in New York had been stuck with its bullish view, stating that the copper metal, which is a preferred commodity, will increase by about 24 percent to 7,049 dollars per tonne, by the end of the current year. Morgan Stanley, stated in a report that, the bank has no evidence on the collapse of demand in copper

 

The value of the commodity, declined to 6.2percent last week, which was the biggest decline since the year 2011, after the World Bank cut down its forecast for the world economy. The decline in energy prices has also affected the price of metal prices, by declining the cost of production, forcing the companies to cut down the price, stated Morgan Stanley.

 

Tom Price stated on his report that, the bank stays bullish regarding the copper outlook. The bank also stated that, it was surprised on the latest move by copper price. The almost 50 percent decline in the price of the oil, over the past year, has also declined the production cost copper by about 5 percent. From July 2014 to 12th January 2015, the 90 percent of changes in the price of copper is due to the change in price of oil. But last week the connection between the two commodities broke, the value of copper declined to fast to too low.

Copper expects to run short

This metal which is economically sensitive declined by 14 percent, by the end of last year, has forced the crowd to jump on the downward action. The Futures contracts are anticipating on the further falls for the metal at multiple month highs on the London Metal Exchange, has seen that the similar contracts hike by 180 percent, since the beginning of the month December, stated the Financial Times

The decline of the commodity will hike by the expected decline in the Chinese Economy, which accounts for 45 percent of the global demand and there is also a forecast of the increase in the supplies in the mine this year and also in the year that follows.

The estimates of Wall Street show that, the increase in supply might be off the base. The mining giant Glencore PLC, also agreed with the estimation. The company is the biggest supplier of copper in the world.

The company also stated that, forecast of surplus in the year 2015 will be very small, based on the past surplus, and the chances are less that, the decline will move further outward. The company also added that, it wouldn’t be surprised to see a deficit in the year 2015.

Is Aluminum The Next Commodity To Crash?

Remember that when it comes to industrial metals, two of the most notorious banks in the US, Goldman and JPM as well as the world's biggest commodity trader Glencore, tried to corner the market and became a supply-controlling syndicate a la De Beers, controlling how much metal hits the market - most notably aluminum - and creating an artificial scarcity in the process. We covered this first in 2011, but few people noticed even if the data was staring everyone in the face.

They failed, when this story became mainstream two years later following an article in the NYT which led to numerous congressional hearings, lawsuits, guilty pleas, and so on, in the process crushing the big banks' scheme to corner physical commodities. As a consequence, most banks have spun off are in the process of selling their physical commodity divisions.

However, one thing did not change: aluminum was still largely locked up in warehouse inventory, with little if anything of the underlying product, i.e., supply, hitting the market (and market price).

And as the charts below show, while copper has plunged in recent weeks, aluminum has been surprisingly stable, even though like copper aluminum is one of the key metals behind Commodity Financing Deals.

That is about to change, because according to a source at Metal Bulletin the aluminum trickle (at first, then flood) out of warehouses and into the market, is about to be unleashed.

Does this mean that the one industrial commodity which so far was spared carnage is about to be "coppered"? And if so, how many hedge funds and prop desks who have aluminum-collateralized loans will have to struggle even more to pretend they can keep pushing that margin call into voicemail forever. We expect to find out shortly.

China’s GDP Release to Trigger Further Copper Price Falls?

Market focus has shifted to the China Q4 GDP figure due for release next week, which is expected to slow significantly.

Bloomberg predicts that China’s growth will slow to 7.2% in the final quarter of 2014. Will copper prices present a renewed decline on poor data from China?

“Copper prices are likely to slide should the GDP data turn out poor, but the impact will be limited as the result is somewhat within market expectation,” an analyst from Shanghai CIFCO told SMM.

Analyst from Jinrui Futures also reckons that copper market may not be significant affected even if the economic indicator proves weak, as market prediction is for the economy to slow. “The bad data might have been priced in,” the analyst explains. 

Copper & Crude Convolutions: "The More This Goes On The More It Looks Like 1937"

The primacy of the monetary pyramid in 2015 is not really about money as it is all ideology. If you believe that monetary policy provides “stimulus” then you immediately remove all thoughts of any economic decline during times when monetarism is most active. Since “it works” then all else must fall into place. Contrary indications are thus given extraordinary lengths to maintain logical consistency.

Economic commentary as it exists is incredibly short-sighted, though there is no reason to believe that is anything other than exactly what I stated above. The state of economics even as a discipline has internalized Keynes so deeply that all that matters is what happens month-to-month. That makes it easier to maintain the status quo of opinion about “stimulus” – in the short run it is very easy to find a suggestion for something behaving “unexpectedly.”

That was certainly the case with crude oil prices these past few months, as the initial impulse was uniformly and incessantly prodded to over-supply. Again, the reasoning behind that was simply since “stimulus” works and it was being practiced and replicated all over the world there was no possible means by which “demand” might drop, and so precipitously. After a few weeks of oil “unexpectedly” falling further, re-assurances were more difficult and increasingly derivative by nature.

The parallel excuse was that oil prices were oil prices and that very little else “important” was behaving as was crude. And whatever commodity prices were falling in parallel fashion, that was distilled as being nothing more than either an oil “echo” or supply everywhere. This was written in November 2014:

The simple reason for the dip in commodities prices, these experts say, is that we have too much of a good thing: too much gold; a bumper crop of corn; a glut of iron ore because the big three producers, Rio Tinto, Vale and BHP Billiton have all increased output. In crude oil, members of the Organization of Petroleum Exporting Countries keep pumping out oil, while US production is at its highest level since 1986…

That lack of demand is why the commodity markets aren’t forecasting bad times in the future; they’re mirroring the current dark “mood” of the commodity investor, said analysts at Citi Research in a research note from 16 November.

The article should have just come right out and stated the central theme: commodity “investors” are in a “dark mood” because the world is so good right now. And while that may hold some minor plausibility on the surface, it is, again, far too narrow and focused solely on this moment. Even if commodity prices were, in fact, trading only on over-supply, therein lies the seeds of the next economic problem anyway. What factor in this economic world would lead to such an imbalance in the first place?

After all, businesses are supposed to be set on expectations for future conditions, and this narrative more than suggests that they were decidedly bad at doing so. Producers that so over-produce themselves into big trouble are either really stupid, or led astray by prices that, at their core, don’t make fundamental sense.

In other words, even if you follow this tendency to excuse “unexpected” weakness, it still amounts to largely the same problem – an artificial “boom” predicated on artificial prices rather than something more fundamentally sound and thus sustainable. It all ends up in the same place as an imbalance that will have to be cleared via retrenchment; a fact that is missed in the euphoria of “this month is compared only to last month.”

One reason Haworth said he’s not worried about a bigger global recession is the behavior of copper prices. Because the red metal has many industrial uses, commodity watchers will sometimes say copper has “a PhD in economics”, and it can be a gauge of future industrial demand. US copper futures prices have dipped below $3 a pound on rare occasions in 2014, but it’s always bounced back up. Prices currently are around $3.04.

Haworth called that “heartening” and posits copper prices are suggesting that while global growth is not strong, it’s not falling apart.

“In order for me to become worried about a recession, I think we’d need to see a much bigger fall in the price of copper and that’s not happening,” Haworth said. [emphasis added]

Almost immediately upon having those words printed, the price of copper declined below $3 and has remained lower ever since; in fact still falling further even now. I don’t profess to know at what price Mr. Haworth would consider low enough to change his global recession stand, but in wider context it is clear that the possibility has already been more than suggested.

As of this morning, the front month futures price of copper delivery is almost exactly the same price as it was in June 2010 at the lows when recovery after the Great Recession was very much in doubt – leading to QE2 and the last great “rip” in commodity prices (as if that were a good thing). It only matters that copper prices are not wholly collapsing right now, in scale closer to what happened starting July 2008, if your view of the world is temporally tapered. Taking a longer view, copper prices have been falling since the 2011 apex of the $/€ crisis, with the longer-term trend established in early 2012 as global growth (demand) has done nothing but wane.

In a physical world where supply and demand have to clear at some price, it is not really surprising that a slow attrition in economic activity would show up as a much more durable and extended slide in not just copper, but almost every economically-sensitive commodity. Since that trend includes the beginning and end of QE 3 & 4, as well as innumerable “stimulus” programs in Japan, Europe, China and elsewhere, with nary a durable upward impression, it speaks very ill of the impact of monetarism on actual “demand”, even if it were “over-supply.”

The mainstream impression of all of this is one of independent and discrete trends with no unifying nature. That fits the idea that “market” prices can be as they are without disrupting the narrative of an economy on the upswing. But the financial system, especially globally, does not behave as a segregated and compartmentalized price engine – and certainly not for extended periods. The fusion of all these pieces, and why crude collapse is really indicative of the underlying trend, is, of course, the “dollar.”

In a globalized and financialized world, financial disruption, which is what a “rising” dollar signifies, is not an independent paradigm. The more prices trend exactly opposite of how “stimulus” is supposed to work, the less these convolutions will hold up whereby, eventually, reality sets in. The significance of the action in December is that there are no more lines in the sand left to defend the “honor” of monetarism; copper isn’t anywhere near $3 anymore and the long-predicted crude oil bounce to $70 is instead $45 and falling. Only equities remain, and at these valuations they signify nothing but the folly of the artificial economy. The more this goes on, the more it looks like 1937 lives again.

Sourced From Jeffrey Snider via Alhambra Investment Partners,

Copper Carnage Continues - Bloodbath At China Open

Update: COMEX Copper trades $243.40

Heavy volumes in the futures markets have smashed COMEX Copper prices to as low as $251.90 as China opens. This is the lowest level for copper since July 2009... LME prices are as low as $5,500/mt... Blame OPEC! In fact - we suspect - blame massive rehypothecation hedge unwinds...

• *COPPER DROPS BELOW $5,500/MT ON LME
• *COPPER DROPS AS MUCH AS 5.7% ON THE LME

Total Carnage

This is not a normal China open...

As Bloomberg reports, the catalyst for this latest leg down appears to be World Bank global growth forecast cuts...

Copper tumbled below $5,500 a metric ton for the first in five years as a cut in the World Bank’s global growth forecast fueled speculation demand for raw materials won’t be enough to eliminate a supply glut.

Copper dropped as much as 6.6 percent and nickel slid 2.2 percent. The world economy will expand 3 percent in 2015, according to a World Bank report released today, down from a projection of 3.4 percent in June. The Bloomberg Commodity Index of 22 energy, agriculture and metal products slid to the lowest level since November 2002 yesterday after dropping 17 percent last year.

“The news everywhere is doom and gloom,” said David Lennox, a resource analyst at Fat Prophets in Sydney. “Prices are going to keep sinking.”

Copper for delivery in three months on the London Metal Exchange dropped as much as $388 to $5,472 a ton, the lowest intraday price since July 2009. The metal was trading 6.1 percent lower at $5,501.25 ton at 9:54 a.m. in Hong Kong.

All other metals on the LME declined, with nickel dropping to the lowest since February 2014.

*  *  *

Maybe commodities are on to something...

Naah - stocks are all-knowing...

*  *  *

Copper's cost curve is coming under pressure...

*  *  *

Crude is also under pressure...

Copper price touches 63-month low

In early New York trade on Friday copper for delivery in March fell to an intra-day low of $2.738 per pound, touching levels last seen end-September 2009, after inflation data out of China renewed fears of a worsening economic outlook for the world's top consumer of the metal.

China consumes almost half the world's annual copper output and a worse than expected 3.3% drop in factory gate prices in December was interpreted as further evidence of inactivity in the country's real economy. While consumer prices showed a small uptick, producer prices in China have now fallen for 34 months in a row.

Given its widespread use in transportation, manufacturing and construction the copper price is sensitive to any economic slowdown.  China's GDP growth is expected to slow to 7% in 2015, which would be the slowest pace since 1990.

The Chinese government wants local industry to turn to exports if domestic offtake is not enough to sop up local metal

The bad PPI numbers were blamed on excess manufacturing capacity, particularly in China's heavy industries, a major factor in the 18% slide in the price of copper over the past year and the nearly 50% drop in iron ore.

The copper price has also come under pressure this week after Chinese authorities approved an export tax rebate of 9% for copper bars, rods and profiles, while increasing the rebate for foils to 17% from 13% to stimulate exports.

In a research note, Edward Meir, analyst at INTL FC Stone, says it points to uncertainty about domestic Chinese demand:

"Reuters cites Antaike as saying that the new rebate could push up exports of these products to a rather significant 100,000 tons a year. More importantly, it tells us that the government wants local industry to turn to exports if domestic offtake is not enough to sop up local metal."

The supply side picture isn't helping either. Forecast mine output growth through the year of 6% or 1 million tonnes and another 800kt in 2016 is a lot to absorb for the market and is the reason why most forecasts for the price in 2015 is below today's levels.

Falling oil, the top input costs for all miners bar those lucky enough to sit on copper oxide, could also have the perverse effect of keeping high-cost mines in the game for longer, further depressing prices.

That said, unlike iron ore where predicted oversupply this year is estimated as high as 175 million tonnes in a 1.3 billion tonne market, the copper industry is much more prone to disruptions.

Aside from the more typical disruptions associated with adverse weather, technical problems, power shortages or labour activity, copper miners are also dealing with generally higher costs due to falling grades requiring higher tonnage and rising impurity levels. The depressed price will also force companies to make tough decisions on any expansion or greenfield projects.

Image supplied by Glencore show Anibal Contreras clearing slag at the company's Altonorte metallurgical facility, northern Chile.

China's New Export Rebates for Copper Semis to Encourage Development of High-end Products

China has introduced a 9% export rebate for some copper semis and raised export rebate for copper foil, effective on January 1, 2015, a statement issued by the Ministry of Finance shows.

The statement indicates a new 9% export rebate for copper bar, rod and profile, and export rebate rise for copper foil from 13% to 17%.

“China reported net imports of copper semis in recent years despite its huge copper processing capacity and production, as most processors are unable to produce high-end products.

Mining in 2015: Copper price topped

What happened in 2014:

The price of the red metal briefly dipped below $3 a pound in March – a near four-year low – on market expectations of a move into surplus after years of deficits.

By the third quarter it was clear mining output and shipments were falling far short of predictions thanks to suspended Indonesia concentrate exports and (surprise, surprise) project delays and production disruptions.

While oversupply fears proved to be overblown, copper is ending the year down 15% near its lowest for the year as uncertainty over Chinese consumption continues to gnaw at investors.

How things could change in 2015:

While not all of it will reach markets, forecast mine output growth through the year of 6% or 1mt and another 800kt in 2016 is still a lot to absorb.

Falling oil, the top input costs for all miners bar those lucky enough to sit on copper oxide, could also have the perverse effect of keeping high-cost mines in the game for longer, further depressing prices.

Too much is being asked of Chile and Peru which together must bring 7.5mt to the table

China’s refined output is racing ahead hitting a record 7.2mt from January-November, up 11.5% year-on-year and more capacity will come on stream 2015.

There’s nothing like a crises to focus minds so Mongolian politicians could even resurrect Oyu Tolgoi’s much anticipated and mammoth phase II while other long shots like Iran – expected to produce 300kt in 2015 no less – returning to the market could weigh on the price beyond 2015.

There is price upside potential: Too much is being asked of Chile and Peru which together must bring 7.5mt to the table in 2015. Codelco’s problems with arsenic, grades, labour and funding are well documented.  And Peru’s new flagship projects like Las Bambas and Constancia still needs work.

Price end-2015:

Not much below $3/lb (and that counts as bullish) and a rising trend into 2016.

All bets are off if…

China State Grid Corp’s $65 billion annual fixed investment budget plus rollover from funds unspent during 2014 finally gets deployed.

What Are Major Factors to Affect Copper Prices in 2015?

Copper prices posted sharp declines in 2015, with Shanghai Futures Exchange (SHFE) copper falling by 12.92% as of December 26, and copper London Metal Exchange (LME) down by 14.58%. What will be the main factors to affect 2015’s copper prices?

Growing Copper Supply
Most of Chinese futures analysts interviewed by SMM still consider market fundamentals the key factor to impact copper price trends in 2015.

“The oversupply pressure in copper concentrate market will pass on to refined copper market with copper smelters expanding capacity, so we expect a more than 4% increase in copper supply in 2015,” analyst from BOC International Futures told SMM, “while copper consumption growth is expected at only 3.3%.”

Analyst from Minmetals Futures agreed and noted that global copper supply will grow faster than 2014 next year, and the increase in demand will slow down, boding ill for copper price outlook.

Monetary Policies
“On the macroeconomic front, monetary policies in the US and China will garner much attention,” said an analyst from the CIFCO. “Although the timing of the Fed’s first interest rate since QE was not decided yet, market prediction is for the Fed to raise interest rate in mid-2015, and the rate hike is bound to bolster the US dollar index, affecting commodity market,” the analyst added.

“China’s central bank may employ relatively loose monetary policies and pro-growth measures to help with its housing market which experienced a downturn in 2015,” analyst from Jinrui Futures told SMM. The analyst considers it a positive factor for copper market.

Crude Oil
“Copper prices have been largely hit by slumping crude oil prices in late 2014 and any rebound in copper in 2015 will be subject to a bottom-out in crude oil,” said an analyst from Dayou Futures.

China’s Copper Stockpiling
“We expect a 370,000-tonne surplus in global copper market in 2015, but China’s potential copper stockpiling will help ease the glut,” analyst from Galaxy Futures said in an SMM interview lately. An analyst from BOC International Futures expressed his agreement, explaining that the possible copper purchases by China’s State Reserve Bureau will be a wild card.

Other Uncertainties 
Analysts interviewed by SMM also listed a number of uncertain factors, such as volatile yuan’s spot exchange rate arising from any change in China’s foreign exchange policies, possible strikes at copper mines, and the potential El Nino conditions.