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Copper – The Downtrend continues

Copper – The Downtrend continues

The most discussed commodities by journalist are oil, gold and silver. Industrial metals, however, only get little attention although their performance is at least of similar importance as an indicator of economic activity. While oil is mostly used as the primary indicator of economic development, one must consider that the price of oil is highly dependent on geopolitical developments. The recent decline in the oil price has two main reasons: on the one hand, there is a slacking economy in Asian countries and on the other hand, an increase in oil supply through the fracking technology used in the US. To obtain their own market power, OPEC, however, has decided to not reduce but to maintain their output constant in order to further depress oil prices. The goal is to urge the newly emerged competition in the United States out of the market - the breakeven price of fracking oil is between $45 and $50.

Copper on the other side is widely used in industrial production, and is next to aluminum, nickel and zinc one of the major industrial metals. Particularly the recent economic difficulties observed in China have had a strong negative impact on the copper price. While the industrial production (YOY) was growing at more than 15% in mid-2011 this rate has declined to 5.6% today. At the same time the price of LME copper fell from just under 10,000 USD/ton to now only 4630 USD/ton. The chart of copper suggests that the downtrend will persist. On its way down to the lows from January 2009 at 2817 USD/ton we only see the 78.6 % Fibonacci retracement level (from the 01/2009 to 02/2011 move) at 4395 USD/ton and the historically and psychologically  important level of 3000 USD / ton that could support the copper price. Nevertheless, this road is still long and could be thwarted by continued closure of unproductive mines and by the weather phenomenon El Nino, which could lead to a supply shortage and therefore could cushion the price decline.


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