Copper Futures Trade Near Steady Amid Weighing of Strong Demand and Economic Recovery

Strategic Insights -

Copper futures, sensitive to the housing outlook due to its widespread use in wiring and piping, traded near steady Monday as market participants grappled with the balance between strong demand from emerging markets, particularly China, and the sluggish recovery in the US and Europe. The December contract on the Comex division of the New York Mercantile Exchange rose 10 cents to $3.523 a pound despite some signs of weakness in the economic recoveries of both regions.

Key Takeaways:

  • Copper futures have advanced recently despite weak economic recoveries in the US and Europe, driven by strong demand from emerging markets, particularly China.
  • A weakening dollar supported prices Monday, making dollar-denominated futures cheaper for non-US market participants and enhancing the appeal of commodities as alternative investments.
  • Copper is sensitive to the housing outlook, with prices not reacting to a report that the US housing market confidence index was unchanged this month.
  • The National Association of Home Builders reported a September housing market index of 13, unchanged from August.
  • Barclays Capital analyst Kevin Norrish attributes the strength of emerging markets, especially China, to the upward price trend for metals.
  • Standard Bank analyst Leon Westgate notes that Chinese holidays later this week and in early October may send buyers to the sidelines, leading to reduced liquidity and technical signals taking charge.
  • Ongoing inventory declines have supported prices, with copper inventories stored in London Metal Exchange-monitored warehouses declining by 1,700 metric tons to 382,500.
  • The latest Comex inventory data showed a decline of 356 short tons to 89,416, with stocks down 4% in September and 24% this year.

Statistics:

  • Copper futures rose 10 cents to $3.523 a pound on the Comex division of the New York Mercantile Exchange.
  • Copper inventories held in London Metal Exchange-monitored warehouses declined by 1,700 metric tons to 382,500.
  • Stocks are down 4% in September and 24% this year.
  • The National Association of Home Builders reported a September housing market index of 13, unchanged from August.
  • The US housing market confidence index was unchanged this month.

Sources:

  • Dow Jones Commodities News via Comtex, September 20, 2010
  • "Housing Market Index" report by the National Association of Home Builders, September 20, 2010
  • Research note by Kevin Norrish, Barclays Capital
  • Interview with Leon Westgate, Standard Bank, September 20, 2010