Copper is an industrial metal and it has value, which means people actually invest in it. However, by the end of April 2013, copper had seen its steepest fall since the previous May.
There are a number of reasons why copper has seen this fall, making it evident that it is a big deal in the market because of how it has affected those who have money on it and make money from it. First, inflation in the Euro Zone has seen a three-year low and unemployment reached a new record. This leads to interest rate cuts. Second, the U.S. Federal Reserve is expected to keep up its current pattern of bond buying. They are currently spending $85 billion each month. Third, copper closed at $7,055 a tonne on the London Metal Exchange, which was down from $7,153.50 the day before. For the month of April, it fell a total of 6 percent, which was its steepest fall since May 2012.
Copper also fell in China. The repeated decline has led to investors moving away from commodities due to fears that more falls could occur.
The Importance Of Copper
Copper is a key industrial commodity and its performance is used as an indicator of economic development and growth. It is the COMEX copper chart that is suggesting a bearish economic outlook at a time when the other indicators say that it has a bullish outlook. Typically, a DOW index that rises suggests economic growth that matches the rise in copper price. However, that is not what is occurring right now, so investors are looking at the strength of divergence between other market indices and copper price.
When looking at the weekly COMEX copper chart, it is dominated by the pattern of indecision, which is a long-term symmetrical triangle. The optimists on the bullish end push the market prices higher, which is shown by a trend line that increases. The pessimists on the bearish side push prices lower, which is shown by the trend line that slopes downward. These two trend lines suggest that there is indecision in the market because there is no clear pressure on either the bearish or bullish sides. The probability of there being a downside or upside breakout is around 50 percent.
Another important feature of the triangle pattern is how it is used to predict the downside and upside price targets. Once the breakout has started, there is a good chance that the targets will be achieved. There is an even higher chance that the downside targets will be achieved because it is always easier for a market to drop than it is for it to be on the upswing.
As for when the base of the triangle developed, it occurred in September 2011. In other words, it wasn’t always there like the sides of it. It simply developed based on the uptrends and downtrends that occurred over time and it is worth $.91 cents when looking at it on a chart.
So basically copper is a fantastic guide as to what is happening within the market, which is another reason why it is very important. The combination of chart pattern targets and support features gives a hint as to how price action may form.
The Future
In the very near future, it is expected that there will be a rise in copper demand from China and there has been a notable increase in German industrial orders since March. The prediction is that copper prices will increase in the middle of the year due to that improving demand. As it stands, however, early May saw China’s copper imports falling to their lowest levels in almost two years. This has to do with domestic demands weakening, so an increase in demand will be welcomed all around.
But before we see that increase in demand, China has to use up their existing supply. Currently, the supply is sufficient and the domestic copper inventories are at a record level. This is due to the record imports and domestic production in 2012. This is one of the reasons why imports by China have decreased in 2013. They stockpiled and they do not have room for any more. How quickly this consumption occurs depends on the manufacturers and the population, as copper consumption is weak and that is why the supplies are diminishing slowly.
In the meantime, Chinese steelmakers have been taking advantage of a dip in the price of iron ore. In April, imports rose over 16 percent from just 4 percent in March. The total that they imported was 67.15 million tons, making iron ore a possibility for investors looking for an industrial metal to invest in.
Analysts believe that steel buyers in China may be stockpiling due to the lower prices rather than responding to a surge in demand. The demand is believed to be steady rather than on the rise, but the decreased prices means great profits when the demand begins to increase again.
As for Copper, there will be a time when the demand rises again and people will begin profiting once more. In fact, copper did see a rise on May 7, 2013 as the U.S. released a report that fueled hopes that the world’s economy is improving. Analysts are saying that they expect copper to increase to around $8,000 per tonne by the end of the quarter and this is due to an assessment of the lack of scrap that China has. Prices have been low and that will eventually lead to that demand increase mentioned earlier in this article. This isn’t necessarily the beginning of a bull run. Instead, it is more or less a corrective bounce that will put everything back to where it should be.
And if you are wondering about the aluminum and nickel markets, they look like they are placed for relief rallies. The reason is because 65% of aluminum producers and 45 percent of nickel producers are not making money at the current prices. Tin, zinc, and lead have also been down. Overall, all industrial metals have seen better days and so have those who invest in them.