Copper prices surged above $7,000 a metric ton for the first time since 2014 as metals rallied on stronger Chinese factory data and Federal Reserve Chair Janet Yellen warned that U.S. inflation may accelerate. The red metal jumped as much as 4.3 percent on the London Metal Exchange, while nickel climbed for a seventh session, the longest run since August.
Industrial metals have gained amid sustained optimism about the strength of Chinese consumption and signs that inflation is picking up in other major economies as global growth rebounds. Copper for three-month delivery climbed 3.7 percent to settle at $7,134.50 a ton at 5:51 p.m. in London. Lead, nickel and aluminum also closed higher while tin was unchanged. Zinc declined.
No one knows where the next move will be, but I see more supportive factors than downsides for base metals.
Gold is waking up.
After cratering from more than $1,350 to a low of $1,270 in just four weeks, gold futures finally bounced this month. The fourth quarter has been kind to the metal so far as it briefly pushed back above $1,300 to start the trading week. The Midas metal is giving back some of those gains early this morning. It’s down about $12 so far today…
But gold’s not the metal that’s catching my eye this week.
Right now, I’m all about industrial metals.
A global economic recovery is starting to lift metals from their lows. Steel, nickel, aluminum and iron ore have all perked up recently. Palladium— an important component in catalytic converters— is streaking above $1,000 this week for the first time in 16 years.
One of the big catalysts behind the rally we’re seeing in industrial metals is strong data out of resource-hungry China.
China brought in more than 100 million tons of iron ore last month, Investor’s Business Daily notes. That’s 16% more than the country imported in August. Demand is much stronger than analysts anticipated. Copper imports also continue to surge.
Trumponomics are also helping metals catch a bid. The White House is now “requiring the use of North American-made steel, aluminum, copper and plastic resins in cars and trucks sold under North American Free Trade Agreement rules, as it seeks to give U.S. industry a boost,” Reuters reports.
The results speak for themselves. It’s been a bumpy ride, but the metals and mining sector is finding new life during the second half of 2017. Since the beginning of the third quarter, these stocks are outperforming the S&P 500 by a significant margin.
The SPDR S&P Metals and Mining ETF is up more than 9% since July 1st. Meanwhile, the S&P 500 is up just shy of 5.5%.
Then there’s copper. The metal posted new 2017 highs yesterday, extending its breakout. It’s now sitting on year-to-date gains of almost 30%.
Back over the summer, we told you copper’s bounce off its summer lows was legit. Now it’s extending its comeback move.
You’ll recall that copper died a slow death after topping out in 2011. A nasty six-year bear market sliced its spot price in half. But as we revealed earlier this year, Copper’s prospects have changed dramatically. The post-election rally back in November was the spark that helped copper snap its nasty downtrend. After seven months of choppy consolidation, copper jumped back near its March highs by the summer, signaling to us that it was ready to make a play at a huge breakout.
Now Dr. Copper is back on the move – and we’ve already reserved our seats on the bandwagon. I don’t know if copper is just getting started on another decade-long bull run or if it’s just enjoying a short-term rally. Either way, we’re willing to ride the new trend to gains.
You had a shot to grab onto shares of Freeport-McMoRan Inc. (NYSE: FCX) back in July just before copper rocketed higher. You’re already up nearly 15% on FCX since we first mentioned the trade.
As we mentioned back in the summer, buying FCX is like buying a call option on copper without the high commission. When copper jumps, the miner tends to magnify the move.
That’s exactly what’s happening right now. FCX is leaping back toward the top of its range:
A break above $15.75 could give FCX the momentum it needs to tackle its January highs. Hang on tight! More gains are on the way…- Greg Guenthner
Indonesian officials said this past week they are close to an agreement on the major Grasberg mine. Which would see a price set for the government’s legislated purchase of a 51 percent interest in this world-leading operation.
And elsewhere, more major developments emerged for the global copper market. With a leading presidential candidate in the world’s top producing nation saying he wants to overhaul the local mining sector.
That’s Chile, which is gearing up for a presidential election in November. And this week, center-left candidate Alejandro Guillier laid out a 10-point plan for mining reforms — which could mean major changes coming for the Chilean copper sector.
Most of Guillier’s proposed changes are positive. With the candidate pledging to make royalties and environmental impact procedures more amenable for the mining sector.
Guillier also said he would move to streamline the permitting process for major mining projects — by creating a new office dedicated to the review of proposed large-scale operations.
But the biggest change proposed by Guillier would shake Chile’s copper sector to its foundation. By repealing a secret and controversial piece of legislation that has dogged the local mining sector for decades: the Copper Reserve Law.
Under that rule, Chilean state copper miner Codelco is required to transfer a portion of profits each year to fund Chile’s armed forces. With the law having been criticized for a lack of transparency, being outside of the control of Chile’s parliament.
Guillier said he would push for a complete repeal of the law. Which could open the door to Codelco keeping a larger portion of its profits — and thus having increased funds for expansions and new project developments.
That in turn could lead to increased production from Chile as a whole. Guillier also said he wants to do the same with lithium, by creating special state agencies to support development of new projects. Watch for results of the presidential election in November and December.
Here’s to change coming. – Dave Forest
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