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Copper Sits Not Far Off Its Recent Peak

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Copper fell to a new low at the start of 2019 when the price reached $2.5430 per pound. Copper fell marginally below the mid-August 2018 bottom at $2.5520 when it turned around, and the price began to recover.

Copper is a bellwether commodity when it comes to the raw materials that are the building blocks of infrastructure around the world. Copper is the leader of the metals that trade on the London Metals Exchange. The prices of aluminum, nickel, lead, zinc, and tin often follow the red metal on the up and the downside. All of the nonferrous metals, including copper, are highly sensitive to economic growth in China which is the demand side of the fundamental equation for most commodities. The vast population and economic growth make China the critical variable when it comes to the path of least resistance for the prices of copper and its industrial cousins.

The trade dispute between the US and China over the past months has weighed on the prices of many commodities, and base metals had been no exception. Slower economic growth in the Asian nation on the back of tariffs and retaliatory measures had put a bearish spell on industrial commodities prices. Copper was trading at over $3.30 per pound in June 2018, and the trade issues were one of the factors that pushed the metal through technical support levels leading to the low at the start of 2019. On the way down, the red metal fell below $2.8750 per pound which was a technical support level that became technical resistance. 

Source: CQG

As the weekly chart highlights, copper in February the recovery in the copper market took the price above $2.8750 which was a technical break to the upside. After making lower lows since last summer, copper displayed a sign of bullish life.

On March 13, the price of copper was sitting at $2.93 per pound which was not far below the most recent peak at $2.9780. The next level of technical resistance stands at the critical psychological level at $3 per pound. The path of least resistance of the red metal may depend on the success or failure of the ongoing negotiations between the US and China to agree on a new framework for trade between the nations that ends the period of protectionist policies. Since the Chinese economy suffered the most under the weight of tariffs, a handshake on a deal between Presidents Trump and Xi could reignite economic growth in China which would likely lead to an increase in the demand for copper and other industrial metals.

Meanwhile, last March stockpiles of copper in London Metals Exchange warehouses around the globe stood over 388,000 metric tons. As of March 12, inventories were at only 112,725 tons. With the prospects for a trade deal between the US and China and warehouse stocks at the world’s leading copper exchange close to their lowest level in years, it may be just a matter of time before the red metal climbs above the $3 level once again. 

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About the author

Andrew Hecht is a commodity and options trader and analyst. He spent nearly 40 years on Wall Street, including two decades at Phillip Brothers, later Salomon Brothers and part of Citigroup. He executed some of the largest trades in precious metals and bulk commodities as well as booking ships, armored cars, and trains for transport. He has worked with the United Nations and maintains a global network of sources.

Andy is a top contributor at Seeking Alpha and other sites, a university guest lecturer, and consultant. His radio show, "The Commodities Hour with Andy Hecht," airs Tuesdays and Thursdays 5-6 PM EST on TFNN. Andy’s first book How to Make Money with Commodities, has received excellent reviews.  

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