CRU analyst forecasts big downward pressure to copper prices in 2016

By Paul Ploumis (ScrapMonster Author)

November 13, 2015 01:58:05 AM

SEATTLE (Scrap Monster): According to Mathew Wonnacott, CRU analyst, strengthening US dollar is likely to push copper prices down in 2016. The above view on near-tern copper prices was presented during the American Copper Council Fall Meeting held recently in Fort Lauderdale, Florida from November 10th to 13th.

The dollar strength will turn out to be the most important factor that will have an effect on copper prices next year. With US Fed Reserve hinting at higher interest rates, the dollar is likely to remain strong. The rising dollar strength against Chinese Yuan will lead to huge downward pressure in copper prices in 2016. The copper prices are likely to average at $2.17 per lb in 2016, significantly lower when compared with the average price of $2.595 per lb during the initial nine months of the current year.

The recent announcements of production cutbacks are welcome, but unlikely to lend support to copper prices. The prices of the commodity had witnessed sharp rebound, following news that major producers including Glencore are planning to implement significant cutbacks in mine production. However, the advantage thus gained will be offset by other factors including higher production costs, strong US dollar and weaker-than expected global demand growth. The worldwide copper consumption levels are expected to remain weak. The US copper demand may register marginal year-on-year growth of 2.3%.

The contract premiums have dropped in China. The premiums in the US are likely to follow suit. The US copper cathode premiums are expected to remain lower in 2016. In addition, the existing price arbitrage makes it more attractive for Chinese and South American producers to sell copper in the US market. China-the top copper consuming country, will witness higher demand growth in 2016 on account of government stimulus measures. However, residential construction sector is expected to remain weak during the year.