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Copper Slumps Ahead of July Federal Reserve Meeting

July 29, 2020 at 14:22 by Andrew Moran

Copper futures are slumping in the middle of the trading week ahead of the Federal Reserve completing its two-day policy meeting. The industrial metal is also waiting to see what happens with crucial Chinese economic data later this week. Market observers are combing through a new industry report examining the long-term trends for the red metal. For now, there is a lot to soak in for investors.

September copper futures fell $0.016, or 0.55%, to $2.9015 per pound at 13:57 GMT on Wednesday on the New York Mercantile Exchange. Copper prices are trading at their best levels in two years, but they have seemingly hit the pause button over the last week, down a tepid 0.65%. Year-to-date, the industrial metal is up close to 4%.

On Wednesday, the US central bank will finish its July Federal Open Market Committee (FOMC) policy meeting. It is widely expected that Fed Chair Jerome Powell will keep interest rates unchanged at 0.25% and assure financial markets that the Eccles Building will continue to offer support. The Fed recently extended one of its lending facilities from the end of October to next year to help the recovery.

A more accommodative Fed is beneficial for copper prices since it would keep the economy expanding.

In industry data, copper inventories in warehouses monitored by the London Metals Exchange (LME) have declined 82% over the last two months to about 45,275 tons. Copper stocks did pick up 425 tons on Tuesday. But analysts say this could threaten immediate available supply.

According to the General Administration of Customs, China imported 30,734 tons of US copper concentrate in June, representing 1.93% of the country’s total imports. Investors are hoping demand will continue to go up as the government releases manufacturing and non-manufacturing purchasing managers’ index (PMI) readings on Friday.

Fitch Solutions published its copper mining forecast for 2020–2029, projecting steady growth over the next decade of 1.8%. This is down from the average 6.9% output over the last decade. It might be tempting to blame COVID-19, but the researchers note that this would have been the case without the public health crisis. The report cited the closures of low-grade copper mines in China and postponed planned capacity expansions for the slide in production. But Fitch still believes US copper miners are in a good position.

US copper miners are better positioned financially than operators in other markets, having worked to cut operating costs and increase profitability over recent years. In the longer term, Fitch believes copper outlook in the country will recover, driven by a rise in copper prices and continued foreign investment, which will be lured by the country’s high-grade reserves.

On Tuesday, Rio Rinto, one of the world’s biggest miners, said it mined 266,000 tons of copper in the first half of 2020, down 5% from last year. It also projects that output levels still range between 475,000 and 520,000 tons this year.

In other metal commodities, August gold futures edged up $3.70, or 0.19%, to $1,948.03 per ounce. September silver futures dipped $0.005, or 0.02%, to $24.295 per ounce. September platinum futures fell $29.60, or 3.00%, to $956.60 an ounce. September palladium futures cratered $170.60, or 7.21%, to $2,194.89 an ounce.

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