Copper prices are still under downward pressure as the metal posts it’s fifth losing day in a row to trade at the lowest level in over 2 months. A slow down in China, the world’s largest consumer of raw materials, is being blamed for the fall off. A report out of the world’s second largest economy is suggesting that manufacturing expansion is now at it’s slowest rate since the middle of last year. Adding to speculation that China will reduce it’s demand for copper is the fact the Yuan is undergoing an unprecedented devaluation.
Outside of fundamental supply and demand, the Copper chart is proving particularly sensitive lately to technical factors. There are two reasons for this. Firstly, a very clear and established support line is in evidence at the $3.175 level. Secondly, the five downward days that Copper has just experienced has turned this support line into the neckline of a very obvious head and shoulders pattern. A pattern such as this is rare and has a very high completion rate. This will naturally attract technical traders who will temporarily ignore the fundamental drivers of this metal. If Copper can breakthrough this key $3.175 level over the next few trading sessions, then a run on down to $2.900 is much more likely than not.
Even if the technical play fails don’t forget the weak fundamentals for Copper. China is currently the leading contributor to the pull back in Copper demand and pricing. Global growth concerns as a whole however are piling on the pressure on the entire range of ‘growth sensitive commodities’. Along with Copper, pricing pressures are evident in Oil, Aluminium and Natural Gas. Recent doubts around the robustness of the US recovery are adding to the woes of this commodity class. There has been a revision to the consensus GDP estimate for the US, previously anticipated growth of over 3% has recently been revised downward to just 2.5%.
On a macro level therefore lower projected economic growth implies less demand for raw material inputs. Individually of course each commodity has its own set of unique pricing factors. Copper is currently a technical play while Oil and Natural Gas for example, having more than just manufacturing applications, are directly impacted by forecasted weather conditions.
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