Copper’s Rebound: Just What The Doctor Ordered For The Economy?

Investing.com’s daily technical outlook has a “Strong Buy” on the metal, with the firmest sell signal only emerging when it moves beyond the 200-day moving average of $2.979—or virtually $3. With Wednesday’s settlement of $2.83, COMEX copper’s most-active December contract is just over the 100-day moving average.

It is also about 6 percent away—not too far, yet not too near—from achieving the target set by Larrian. Interestingly, copper, in its own right, is also a “doctor”, a moniker conferred on the metal for its “ability” to foretell economic health. Other than oil, no industrial commodity can boast a relationship as close with the global economy as this infrastructure material, which is used in everything from home building to electronic circuitry. Highs and lows in copper prices tend to reflect sound and poor conditions respectively in the world economy.

The biggest question for Dr. Copper now is if it can sustain its recent price rebound against a backdrop where China, the world’s largest metals consumer, is locked in a bitter trade war with the United States, one of its biggest scrap copper suppliers.

Copper’s role in the trade war is particularly important as China said in August it would target $16 billion worth of US imports, including scrap metal, with duties of 25 percent to retaliate against a similar move by Washington. Since then, more than $260 billion of bilateral trade has come under tariffs, with neither country looking ready to make concessions.

That aside, Larrain’s price target may stumble upon another problem: in commodities, supply-demand is king, and forecasts by officials, regardless of their credentials, can go unheeded without the right drivers. Copper is Chile’s top export and Larrain’s original $3.12 call in July, when the metal hovered around $2.80 a lb, can hardly be viewed as unbiased. A Bloomberg report from July (link above) estimated that for every cent increase in the price of copper over a year, the government in Santiago would earn an extra $60 million in revenue.

Despite this, ADM Investor Services, the brokerage arm of global commodities merchant Archer Daniels Midland, said in its outlook on copper this week that it was backing Larrian’s forecast.

ADMIS described copper as a market in “consolidation building (but) with a bullish bias” and cited expanding global demand for refined copper as a strong support base. It added:

“Another bullish development/forecast this week surfaced from the Chilean Finance Minister, who suggested 2019 would bring a $3 per pound copper price.”

Some think copper's surge this week may be fund managers’ way of getting the industrial metal into some of the commodities action that has swept Brent crude oil to four-year highs above $85 per barrel and gold past the key $1,200 an ounce level. As Reuters metals columnist Andy Holmes wrote in his September 26 post :

"The oil market is positively bubbling away, while Iron ore and steel prices remain surprisingly resilient to the prospect of a full-blown trade war between the world’s two biggest economies.”

But on a level more related to its role with the economy, copper’s recovery will help ease emerging markets' yearning for encouraging indicators of growth, following the worrisome currency crises of Turkey and Argentina.

“What happens to the price of copper matters to emerging markets, because the two are tightly linked,” Colby Smith, columnist at the Financial Times, wrote on Tuesday. She added:

“Emerging economies dominate the list of the world's largest copper producers, so this relationship should come as no surprise. Chile, Peru and China lead the pack, alongside Congo, Zambia, Mexico and Indonesia.”

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Written By: Investing.com