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OPINION

Chart: the November copper explosion

Chart: the November copper explosion
November 15, 2016
Chart: the November copper explosion

When the world’s largest economy says it will build more it tends to move metal prices, and a quick survey of both base and steel raw materials shows this is exactly what happened. Iron ore, nickel and aluminium are all well up since October. But the biggest riser by far was copper, which at one point surged by 20 per cent to over $6,000 a ton, retracing 15 months of gradual declines.

As the graph below shows, the copper rally did not start with the US election outcome, but with the publication of China’s manufacturing PMI (purchasing managers’ index) data at the end of October, which showed the greatest increase in demand for two years.

However, many market watchers believe the price spike has disconnected copper from the fundamentals of demand. While the sharp uptick in Chinese new orders is important, the swing in non-commercial futures to long positions has been enormous. If these are based on speculation of surging US demand, they may be found wanting. That’s because Chinese copper consumption is more than six times that of the States, so even if Mr Trump’s infrastructure plans resulted in a 10 per cent jump in American copper consumption, this could easily be undone by a minor fall in demand from the PRC.