Copper Prices Make a Comeback

By Ira Iosebashvili 

Copper is mounting a comeback as investors grow more confident about the global economy.
Prices rose 3.3% last week, after a major commodities trading house surprised markets with an upbeat forecast for copper demand in the second half of this year, while data from the U.S. show an economic rebound is gaining traction. Some investors also believe China, the world's largest consumer of the metal, may be preparing to launch a second round of economic stimulus, which could further boost copper demand. Copper's rally has nearly reversed a sharp drop recorded earlier this month, although prices are still down about 7% for the year.
Fears of an economic slowdown in China, which accounts for 40% of global copper demand, have weighed on industrial-metal prices throughout the year. Although Chinese officials provided a so-called mini-stimulus in April that boosted economic growth, investors grew worried earlier this month as a spate of weaker-than-expected data showed that some sectors of the economy are slowing.
Some of those fears were partially dispelled last week, after miner and metals trader Glencore PLC forecasted strong demand for copper from both China and the West in the latter portion of this year. The company also said an expected glut of supply in the market would be tempered by shortages of scrap metal and the risk of disruptions from both new and old mines.
Also boosting copper prices was a string of better-than-expected data from the U.S. a day later, showing factory activity at its highest pace of expansion since April 2010, while existing-home sales rose for a fourth-straight month. Copper is used extensively in manufacturing, making it sensitive to economic fluctuations. The U.S. is the world's second-largest consumer of the metal.
Copper for delivery in August ended Friday at a nearly three-week high of $3.1990 a pound.
Glencore's comments "brought in a whole lot of new investors, and the U.S. data helped keep the rally going," said Bob Haberkorn, a broker at RJO Futures. "This was a market that was trending lower, and now it's turned around."
With Chinese economic growth expected to slow from the blistering pace of the last few decades, investors have been looking to the U.S. to take up some of the slack. U.S. copper demand is expected to grow by 4.4% this year, the fastest pace since 2010, and is on track to expand for two consecutive years for the first time since 2000, according to Morgan Stanley.
"In our mind, it's going to be the U.S. story driving commodity prices from this point, rather than China," said François Bourdon, chief investment officer for Fiera Capital, a Montreal-based asset manager overseeing $80 billion.
To be sure, some investors believe China's slowdown will continue to weigh on copper demand. Preliminary Chinese manufacturing data for August showed an unexpectedly sharp drop in growth. Meanwhile, Indonesia, home to one of the world's largest copper mines, resumed partial exports of the metal this month after a six-month pause, contributing to an expected global surplus of copper in the second half of the year.
"China is buying much less metal, and there is a good amount of copper coming into the system, which is a negative," said Edward Meir, an analyst at INTL FCStone.
Others, however, note that the weak Chinese data could have a positive effect, pushing the government to give the economy another boost.
"The copper market seems to be looking past the poor Chinese numbers towards expectations of more economic stimulus," said Eugen Weinberg, an analyst at Commerzbank.
Write to Ira Iosebashvili at ira.iosebashvili@wsj.com

(END) Dow Jones Newswires
August 24, 2014 11:15 ET (15:15 GMT)