Hopes for Global-Growth Rebound Drive Copper Rally
December 15 2019 - 11:24AM
Dow Jones News
By Amrith Ramkumar
Copper prices rose last week to their highest level in seven
months, highlighting how a brighter view of the world economy is
supporting riskier corners of the market.
Because it is an industrial metal critical to the manufacturing
and construction industries, copper is extremely sensitive to
investors' perception of global growth. The metal is closely tied
to China, which accounts for roughly half of the world's
consumption.
Worries that the U.S.-China trade war would limit demand had
hurt prices earlier in the year, leaving them trading for months in
a narrow band, but optimism about an agreement between the world's
two largest economies has helped them rise about 6% in the past
eight sessions. Prices on Thursday closed at their highest level
since early May.
Copper's rise underscores how better-than-feared economic data
are supporting a range of markets near the end of the year. Stocks
around the world and other commodities have also posted gains since
the U.S. and China reached a tariff truce in mid-October, and some
analysts say an eventual deal could give the world economy a
powerful boost next year.
U.S. and Chinese officials on Friday announced a limited "phase
one" agreement to halt the trade war between the countries.
The recent rally is a boon for producers and bullish investors
who had watched copper prices languish for months despite falling
inventories and lower-than-needed investment in new mines around
the globe.
"We remain very positive about the outlook," said Richard
Adkerson, chief executive of copper producer Freeport-McMoRan Inc.,
on the company's third-quarter earnings call in late October. "The
demand for copper remains relatively strong throughout the
world."
Freeport shares have risen 20% in the past three months, paring
some of their monthslong decline. Shares of Southern Copper Corp.
have also advanced lately and are up 35% for the year, outpacing
the S&P 500's 26% climb.
Analysts say the long-term outlook for copper looks positive.
Supply remains relatively constrained because of disruptions in
countries such as Indonesia and Chile, while many expect demand to
increase as more consumers transition to using electric vehicles.
Because investors remained wary of a short-term demand slowdown,
however, anticipation of those future shortages had done little to
lift copper prices for much of the year.
In late October, the International Copper Study Group, a body of
copper producers and consumers, lowered its target for 2019 demand
growth to 0.3% from about 2% in May. The downward revision showed
how much trade concerns have weighed on sentiment this year.
But optimism about trade progress and improving manufacturing
data are starting to change that. Copper's recent advance has come
with officials in the U.S. and China laying the groundwork to delay
U.S. duties that were scheduled to take effect Sunday on Chinese
consumer goods as diverse as laptops and clothing.
As part of the initial trade pact, the U.S. canceled plans to
impose those duties and Beijing agreed to purchases of American
farm goods and other products.
"Optimism on trade in the aftermath of the agreement will
probably continue to support commodity prices next week," Capital
Economics analysts said in a note to clients.
If the tariffs eventually take effect, though, some analysts
caution that worries about global growth could drag down stocks and
commodities again, as they did in May and August. The levies would
threaten the steady consumer spending that has powered the U.S.
economy so far this year.
Hedge funds and other speculative investors remain relatively
cautious the industrial metal can extend its rebound, Commodity
Futures Trading Commission data show, meaning that a broader trade
agreement and more upbeat economic data could add fuel to the
rally. Bearish copper bets by speculators have exceeded bullish
wagers for six months, though net bets on declining prices fell to
their lowest level since late April during the week ended Dec.
10.
Even with their recent rebound, copper prices are still 6.3%
below their peaks hit in mid-April. Other industrial metals such as
aluminum and tin have also struggled for momentum, reflecting
worries that material demand in China could continue to slow
down.
Although the private Caixin manufacturing purchasing managers
index rose for the fourth consecutive month in November, Chinese
policy makers have been struggling with rising consumer inflation
and deepening industrial-price deflation. The slowdown is
increasing focus on future trade developments, and some
copper-market watchers expect the uncertainty to keep prices
swinging within their current monthslong trading range.
"We think that's still going to be the theme for the next few
months," said Daniel Ghali, a commodity strategist at TD
Securities. "We don't think the turnaround in growth is going to
happen as fast as people think."
Write to Amrith Ramkumar at amrith.ramkumar@wsj.com
(END) Dow Jones Newswires
December 15, 2019 11:09 ET (16:09 GMT)
Copyright (c) 2019 Dow Jones & Company, Inc.