Copper an Outlier as Most Markets Rebound on Trade

Originally, the company produced only foundry castings at the 106 East 20th Street plant, but expanded to producing machined parts in the 1920’s. A Machine Shop building was leased until 1969 when a new Machine Shop building was built at 401 West 23rd Street.


A retreat in copper prices is signaling continued investor concern for the global economy, even after a cease-fire in the U.S.-China trade fight boosted stocks and other risky assets recently.

Copper, which is critical to construction and manufacturing, fell 1.7% last week, paring some of its rally from late June and bringing its decline from an April high to 11%. Prices have fallen in eight of the last 10 weeks. Investors often watch prices of the industrial metal to gauge momentum in the global economy because the metal is used to build everything from office buildings to electric vehicles.

Latest SlipCopper’s declines in recent weeks have put it farther behind other risky assets.Performance this yearSource: FactSetNote: Commodities are measured by S&P GSCI index and copper is measured by front-monthComex futures

China is the largest source of demand for commodities, accounting for roughly half of global copper consumption. Therefore, economic data from the country and bets on government efforts to stimulate growth can swing prices. Copper’s latest drop follows soft manufacturing data around the world, with downbeat figures out of China in particular leading some to question whether the nation’s stimulus measures can spur further growth.

“The market is watching those numbers and is concerned this could be the start of an unfriendly trend,” said Tai Wong, head of base and precious metals derivatives trading at Bank of Montreal.

“It’s going to take a little more than the defrosting of trade talks to really give copper and the rest of the base metals complex a boost,” he added.

Factory WoesManufacturing activity globally has slowed amid trade tensions.Manufacturing purchasing managers index values by region, monthlySources: IHS Markit via FactSet (U.S. and Europe); Caixin Media and Markit via FactSet (China)Note: Readings above 50 indicate expansion, while those below 50 signal contraction

Copper’s fourth decline in five sessions on Friday pushed prices down to $2.6585 a pound on the Comex division of the New York Mercantile Exchange. They slid 0.8% Friday after figures showed German manufacturing orders fell more than expected in May, adding to mounting signs of a global slowdown in factory activity.

The declines for copper came even after trade developments and bets on lower interest rates helped propel U.S. stocks to fresh records last week.

Long TrendCopper’s June decline was its eighth monthlyfall in 12 months.Monthly performance of front-month copperfuturesSource: FactSetNote: July data through Friday

At the Group of 20 summit in Japan last month, President Trump agreed to remove some curbs on Chinese firm Huawei Technologies Co. buying high-tech equipment from the U.S. and to put off additional tariffs on Chinese goods indefinitely. China pledged to start buying American farm products, Mr. Trump said.

Unlike copper, stocks and other risk assets also largely shook off a report showing the Caixin China manufacturing purchasing managers index fell in June below 50, the critical level that separates an expansion in factory activity from a contraction. Similar gauges of manufacturing activity in Europe and the U.S. have also declined in recent months.

Analysts say such data points are keeping pressure on industrial commodities, which haven’t benefited much from projections for lower interest rates. That is because crumbling industrial demand and steady output may lead to excess supply, according to some analysts.

LaggardCopper has fared worse than the broadermarket in the first six months of the yearseveral times recently.Performance in first half of each yearSource: Dow Jones Market DataNote: Copper measured by front-month Comexfutures; commodities measured by S&P GSCI index

Copper fell for the eighth time in 12 months in June, finishing the first half of the year up nearly 3%. That compares with a 17% rise for the S&P 500 and 14% advance for the S&P GSCI commodities index.

Cautious on CopperHedge funds and other speculative investorshave increased net bearish copper bets inrecent weeks.Difference between bullish and bearish betson copper, weeklySource: Commodity Futures Trading Commission

The 14 percentage-point gap between copper and the S&P 500 through six months was the largest such difference since 2013, according to Dow Jones Market Data, highlighting the extent to which some investors expect lower interest rates to benefit some assets more than others.

With negative momentum building, hedge funds and other speculative investors have increased net bearish bets on the metal, pushing them to their highest level since November 2016 in mid-June, Commodity Futures Trading Commission data show.

“Recession fears have triggered short selling among investors, further adding to price pressure,” Morgan Stanley analysts said in a recent note to clients.

The volatility has hurt shares of copper producers, after hopes for trade progress and Chinese stimulus had boosted mining stocks earlier this year. Freeport-McMoRan Inc. shares are now down 33% in the past year, while shares of Southern Copper Corp. have slid 16%.

Some analysts think signs of further Chinese stimulus and more positive trade news could support a quick rebound in copper. More broadly, a drop in investments in new supply could lead to long-term shortages, some analysts say. Risks to supply in key producing regions such as Chile have also mounted in recent weeks, though a recent worker strike at a large mine recently came to an end.

For now, some analysts expect short-term shifts in sentiment about global growth to outweigh worries about a possible drop in production.

“These hits to supply are overshadowed by macroeconomic risk and trade tensions,” the Morgan Stanley analysts said.

Up and DownShares of copper producers have also been volatile so far this year.Share-price and index performanceSource: FactSetAs of July 11, 4:56 p.m. ET

Write to Amrith Ramkumar at amrith.ramkumar@wsj.com

Copyright ©2019 Dow Jones & Company, Inc. All Rights Reserved.


Over 100 Years Experience – Manufacturers of Bronze Bearings, Bushings, and Continuous Cast Bars Since 1913