[News]Copper looks for more good news after slowdown in rally

[SougarLord]

Copper is about to post its longest rally in history, but the metal considered a barometer of the global economy has recently faltered, with traders looking to Washington and Beijing for clues about the next rise.

Traders and major investors say the market needs more good news before prices can continue to climb. Much will depend on when US President Joe Biden's cornavirus relief bill passes and how extensive it is; how quickly vaccines are distributed; and how much Chinese demand, the world's largest buyer of commodities, declines due to efforts to curb the spread of the pandemic during Lunar New Year celebrations.

 

"People are generally optimistic about the long-term outlook globally, but this is about when it will consolidate," said Jon Lamb, a portfolio manager at Orion Resource Partners managing $ 6.3 billion at the end of September. “It is the clarity on what those initiatives will look like - from the next round of covid aid funding to the covid stimulus infrastructure projects where electric vehicles and renewable energy will be big focuses - and timing will be the catalyst. ”.

 

Due to its widespread use, from pipes and electronic products to electric vehicles, copper is widely considered a barometer of the world economy. Bets on a global rebound after lockdowns around the world, a rapid recovery in China and green economy initiatives in the United States pushed copper to a nearly eight-year high in early January.

 

Copper has risen for ten consecutive months, and an eleventh rise would mark the longest monthly rally since the London Metal Exchange copper contract began trading in its current form in 1986.

 

The metal is on track to surpass that milestone with a rise of more than 3% so far in February, but the rally has lagged the Bloomberg Commodity Index in recent months. Last week, prices briefly closed below its 50-day moving average, in a bearish technical signal seen only for a second period in copper's historic rally.

 

 

Copper fell below its 50-day moving average as the rally slowed.

 

Details are also lacking on long-term initiatives by the Biden Administration that would benefit copper, such as those on infrastructure and climate change. While they are a top priority, it is unclear what the appetite in Congress will be for a big spending plan or how quickly the bills will pass.

 

It is not just the moment of economic recovery that plagues copper. There are short-term factors that make it a less attractive bet. The upcoming Lunar New Year holiday, which begins on February 11, means less demand in China.

 

In the US, the recent recovery of the dollar has not helped. Copper is priced in dollars, which makes it more expensive for investors using other currencies. The Bloomberg Dollar Spot Index rose 0.9% last month, the first monthly gain in four months.

 

While the majority on Wall Street is bracing for a surge in prices, the rally is not without doubt.

 

Analysts at JPMorgan Chase & Co. said last week that the current China-driven supercycle peaked and Chinese investment growth is forecast to slow. Copper prices will decline from an average of US $ 7,700 per ton in the first quarter to US $ 6,500 in the fourth quarter.

 

Inflation

Short-term difficulties aside, the bulls say copper still has a lot to offer.

 

The risk of inflation due to the size of President Biden's aid plan, overshadowing the 2009 bailout package, could also be an advantage for copper. Rising inflation means higher prices for the metal when in demand during a stimulus-driven recovery.

 

Investors' inflationary expectations have risen to an average of 2.2% over the next decade, based on operations in the Treasury debt market. The figure is higher than a post-pandemic low of 0.55% last March.

 

 

Higher inflation expectations could further boost copper prices.