Back to top

Copper Prices Lowest in a Year: Will Red Metal Stocks Suffer?

Read MoreHide Full Article

Key metal prices, including copper prices, stumbled on Aug 15 after the U.S. dollar touched its 13-month high, following Turkey’s currency crisis. Along with a stronger dollar, weak economic data from China — the biggest consumer of copper — also remained a drag on copper prices.

Additionally, one of the world’s major copper miners, BHP Billiton Limited (BHP - Free Report) and the labor union in Escondida in Chile are in talks to end a strike in the mine. This, in turn, avoided supply disruption issues and weighed on red metal prices, which fell for four straight days to touch its lowest level since July 2017.

Turkey Lira Crisis Pushed Dollar to 13-Month Highs

The Turkish lira already lost around 40% against the U.S. dollar so far this year. Although the Turkish Central Bank made some effort to avert the continued decline in lira, it was evidently not enough. One of the key catalysts behind this plunge is worries over Turkey’s capacity to repay foreign-currency debts that rattled the global equity markets.

Turkish president Recep Tayyip Erdogan said that his country is facing an "economic war." Also, the European Central Bank (ECB) has raised concerns about the country’s economic stability, whose leader happens to be Erdogan.

Further, the United States’ decision to increase tariffs on steel and aluminum imports from Turkey added to the woes. Turkey retaliated by imposing additional tariffs on several U.S. imports, including alcohol, cars, cosmetics, and rice. Turkey’s ongoing currency crisis led the U.S. Dollar Index (DXY) to reach more than 96 on Aug 15, a level last seen in July 2017.

China’s Fixed-Asset Investment Lowest in History

According to the National Bureau of Statistics (NBS), China’s fixed-asset investment advanced 5.5% year over year, during the January-July period. Decline in public investment led the metric to fall short of June’s increase of 6%. Fixed-asset investment, the key support to the world’s second-biggest economy, registered its worst performance since the metric’s commencement on 1996.

Moreover, the country’s retail sales rose 8.8% year-over-year in July, falling short of June’s increase of 9% and the projection of 9.1%. Industrial production surged 6% year over year in July, missing the expectation of a 6.3% rise. Slowdown in the Chinese economy following weak economic data also weighed on copper prices as the country consumes about 40% of the world’s copper.

Talks Between Escondida Copper Union and BHP Billiton in Focus

The worker union at Escondida mine, the largest copper mine in the world in Chile that produced 925,000 metric tons of copper in 2017 ended its wage-related strike. This development came after the union and company, BHP Billiton decided to discuss issues regarding labor pay. The Chile government-mediated talks avoided strikes and averted supply disruption concerns.

Following these events, the price of copper for May delivery came down at $2.55 per pound or $5,622 a ton on the New York Mercantile Exchange on Aug 15, registering four straight sessions of declines and reaching its lowest level since July 2017. Copper prices also fell around 0.2% on the London Metal Exchange (LME) to $6,036 per ton.

Given this scenario, companies like Southern Copper Corporation (SCCO - Free Report) , Freeport-McMoRan Inc. (FCX - Free Report) , Rio Tinto PLC (RIO - Free Report) and Amerigo Resources Ltd. (ARREF - Free Report) are expected to bear the brunt. Amerigo Resources has a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Summing Up

Undoubtedly, metal prices, including copper are falling following a stronger dollar. A stronger dollar makes it difficult for non-dollar holders to invest in. Additionally, China, which happened to be the biggest consumer of copper, is suffering as evident from its latest economic data. Further, averting of supply disruptions in Escondida mine in Chile added to the existing woes.

Today's Stocks from Zacks' Hottest Strategies

It's hard to believe, even for us at Zacks. But while the market gained +21.9% in 2017, our top stock-picking screens have returned +115.0%, +109.3%, +104.9%, +98.6%, and +67.1%.

And this outperformance has not just been a recent phenomenon. Over the years it has been remarkably consistent. From 2000 - 2017, the composite yearly average gain for these strategies has beaten the market more than 19X over. Maybe even more remarkable is the fact that we're willing to share their latest stocks with you without cost or obligation.

See Them Free>>

More from Zacks Analyst Blog

You May Like