Copper and the Economy: What Should Investors Watch?

(Continued from Prior Part)

We’ve already seen how the copper inventory in China declined significantly in April. In this part, we’ll look at the recent trend in the London Metal Exchange (LME) copper inventory. Copper is among the most widely traded metals on the LME. Both copper and aluminum have financial demand apart from the real demand from end users.

The above chart shows the trend in on-warrant LME copper inventory. As you can see, it was quite steady in April. However, LME copper inventory is up more than 65% since the start of the year.

An increase in LME copper inventory is an indication that copper’s supply continues to be more than its demand. The demand-supply mismatch puts pressure on copper prices. Copper prices are currently trading at their 2015 highs. Leading brokerages have also increased copper price expectations for next year. However, copper’s demand needs to pick up in order to keep pace with additional supply that’s hitting the market.

BHP Billiton (BBL) has reduced its copper production guidance for 2015. The company was negatively impacted by heavy rainfall in Chile earlier this year. It also faced an outage at its Olympic Dam mine in January.

Rio Tinto (RIO) has meanwhile maintained its refined copper production guidance of 190–220 thousand tons for 2015.

Copper demand indicators in Europe have been positive. The Eurozone PMI (Purchasing Mangers Index) has held above 50 for almost two years. Vehicle sales in Europe have also been strong. This bodes well for copper demand in Europe.

Freeport (FCX) gets a major portion of its revenues from US markets (IVV) (SPY). In the next part, we’ll analyze how copper demand is shaping up in the United States.

Continue to Prior Part

Browse this series on Market Realist:

• Part 1 - Freeport-McMoRan: What’s Impacting This Major Copper Producer?
• Part 2 - Is Doctor Copper Healing the Economy?
• Part 3 - Chilean Copper Production Falls, Chinese Production Rises