Tonight’s Federal Reserve meeting could provide clues on future monetary policy, and ahead of that, investors have started to cut their long positions in copper as the rally in copper prices weakened.
Copper prices in London fell below their 50-day moving average and touched a 7-week low. Shares of copper miners such as Freeport-McMoRan Inc. and First Quantum Minerals Ltd. plunged in the sell-off.
Investors are looking for signals on when Federal Reserve policymakers will start scaling back economic stimulus. Thomas Capalbo, a vice president at Societe Generale, said.
“Copper prices fell below the 50-day moving average level, which accelerated the sell-off, a sell-off that may be a sign that investors want to close their positions before the end of the FOMC meeting and the emergence of market uncertainty.”
The prospect that the Fed may soon begin to slow the pace of emergency asset purchases has also boosted the outlook for the dollar, shaking the pillars that have supported higher prices for copper and other commodities, which have been driven higher by a weaker dollar over the past year.
Copper has been one of the standout performers in a year-long rally in commodity markets. The surge in demand has been accompanied by a serious bottleneck in the global supply chain. The bellwether metal hit a record high last month, but its price pressure is building. With demand softening in China, investors are increasingly confident that the strong inflationary forces seen in major economies will be temporary.
Colin Hamilton, managing director for commodities research at BMO Capital Markets, said in a telephone interview.
“We’re at a turning point, and while there are a lot of cyclical favorable factors, the effect of those favorable factors in has waned, and there’s no longer that sentiment in the market now that there’s a fear that prices will keep going higher.”
In the spot copper market, import premiums paid by buyers have fallen sharply. Inventories at Asian warehouses of copper in LON reached the highest level in almost a year. One trader who focuses exclusively on LON copper stocks said some of the imported metal is produced in China, suggesting suppliers are having trouble finding buyers in the domestic market. bmo’s hamilton said.
“If Chinese traders are willing to ship this raw material overseas, it implies they don’t expect a domestic bid in the near future.”
London Metal Exchange (London Metal Exchange) three-month copper prices fell 4% on the 15th, the largest intraday drop since March 4, leading other base metals lower.
The plunge in copper prices also affected copper producers. The Bloomberg Intelligence Index of global copper producers fell to its lowest level in eight weeks, while shares of Freeport, the largest listed copper producer, fell 7.7% in the U.S. trading session on the 15th.
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