Copper:Initial Surge On Trump Election Suffers Correction
Following an impressive rally over the last couple of weeks, Copper prices sustained a correction lower this week as a rampant US Dollar weighed on the commodity complex. Prices initially responded positively to news of Trump’s election as markets speculated on an increase in commodity demand aligned to Trump’s proposals for a huge increase in infrastructure expenditure to begin next year estimated at around $500bln. Better data out of China and signals of improved demand have also leant support to the red metal.
However, the surge in prices has now lost some momentum as analysts consider that even if Trump does deliver on his infrastructure spending proposals, it probably won’t have a material effect on the global supply and demand balance for base metals.
Some major Copper producers this week noted that they’re forecasting heavy oversupply in the Copper markets for at least two years which comes in stark contrast to the sentiment expressed at an industry conference in Shanghai shortly after copper prices recorded their biggest weekly gain since 2011.
China’s largest copper producer Jiangxi Copper Co noted that “In 2017, it will still be a relatively oversupplied market. In 2018 it will not be better than 2017”. Concern has been expressed by some in the industry regarding “over speculation” in the market and what has been described as “irrational”.
Goldman Sachs noted this week that they judge the current moves as “too much too soon”. However, the bank also noted that “on the back of higher Chinese demand growth assumptions for 2016 and lower scrap production, our forecast for smaller surpluses and lower cost deflation sees us raising our forecasts significantly.”
Copper prices have retraced from their initial break of the bearish trend line from highs though have yet to retest the broken trend line which bulls will be expecting to provide support for renewed upside.
