Copper prices climb as China's steel industry looks promising
Feb 23, 2016 09:16 AM EST
With the Chinese steel industry turning positive, the copper prices soared on Monday to the highest in two weeks. This came after China's securities regulator head resigned from the post. Copper prices rallied in four of five weeks.
Several factors influenced copper prices. The latest positive mood in the steel industry is expected to boost the demand for metals. The three-month copper contract on London Metal Exchange (LME) traded up half percent to $4,643 per ton rising from the previous session while the copper price touched $4,648 per ton, the highest level since 9 February 2016.
CNBC reports that the copper prices on Shanghai futures Exchange rose 0.9 percent to Yuan 36070 ($5,532) per ton. Aluminum, nickel and tin prices also rose over two percent while Shfe zinc gained three percent.
Chinese stock markets opened on higher note as investors turned positive towards growth signs in the steel industry and the resignation of head at securities regulatory. Iron ore prices rallied by over five percent on prospects of revival in China's steel industry.
Bloomberg further adds that copper prices rallied in four of past five weeks on the prospects of industrial demand in China. However, hedge funds are still expressing doubts over the sustainability of the recovery. Some funds made bearish bets on metals right from October 2015. The net short position in copper holdings rose last week for the first time since Mid-January 2016 despite surge in the metal.
However, the concerns about global growth kept investors to focus on early indicators of stress next week. Investors are looking to cues from resilient domestic demand in Europe and the US. The steady growth in the US and Europe can offset the volatility in emerging markets.
Analysts see correlation of oil prices with copper, treasury interest rate and US dollar. When a change in oil prices is also accompanied by similar change in copper price, then both are responding to common global demand factor, according to Brookings. The positive correlation of stocks and oil price arise owing to the response to underlying shifts in global demand.
Michael Cuggino, the San Francisco-based President and Portfolio Manager at Permanent Portfolio Family of Funds Inc, said "There's no question that global growth is hiccupping right now. Copper hasn't moved that much. The dynamics are very typical of what you see in the trough of a commodities business cycle." Funds Inc manages about $3 billion assets.
Goldman Sachs Group Inc also forecasts that metal may drop 10 percent by end of 2016. Copper prices witnessed continuous losses for the third consecutive year in 2015. The copper prices fell to the most since 2008 financial crisis. The slow rate of consumption in the world's largest economy and biggest consumer of metals is further keeping pressure on copper prices.