By Jim Williams
Most Americans are getting back to work today after celebrating the Labor Day weekend. If you checked on the markets over the extended weekend, you may be surprised to see copper prices hit their highest level in three years.
Three-month copper on the London Metal Exchange (LME) added 0.5 percent to $6,953.50 a ton in early morning trading, the highest since September 2014.
The price per pound opened this morning near $3.16.
No surprise—China is the driving factor, as signs of strong Chinese economic growth continue to boost the outlook for demand.
China saw solid growth in the first half of 2017 and data released last week showed China's manufacturing sector continued to expand in August, suggesting the economy is still healthy. The official manufacturing purchasing managers index (PMI) for August released last Thursday checked in at 51.7. That is up from 51.4 the previous month, and marks the 13th consecutive month above the barometer of 50.0—which many consider to be the make or break standard.
"Copper continues to enjoy the tailwind from the outlook in China," Saxo Bank analyst Ole Hansen told Reuters. Hansen also suggested a stronger yuan against the U.S. dollar is helping push the red metal higher.
Frequent tED contributor Andrew Hecht of Seeking Alpha chimed in on the impact of copper's rally over $3 per pound, "The strength in copper is likely to support other industrial commodities, including the other base metals that trade on the LME, iron ore, and even crude oil—all of which are staples when it comes to building infrastructure. We are currently in the midst of an industrial boom in the industrial commodities sector and a continuation of Chinese buying and a weak dollar likely hold the key to whether copper will keep on moving up to its next peak or whether we will once again see a period of consolidation which could last for several months."
Analysts at Commerzbank claim copper, along with other metals, was overbought. "Prices have become largely detached from the fundamental data and the potential for a correction is increasing every week. In the past, such extreme positioning has frequently sparked a price countermovement," they wrote in their weekly note.
Over the next few weeks a flurry of data for August is expected to back market expectations for China's growth to taper off only modestly from a solid first half, according to a Reuters poll of analysts. We will keep an eye out for that data—and the reaction to it—and update you here each week.
What is fueling copper? Is it, in fact, the Chinese economy? What about supply vs demand? Labor problems at the mines in South America? And, how long can this hot streak go? Check out this Bloomberg.com article for a comprehensive look at what is making the red metal tick.