Copper Is Outperforming Other Metals


Original Post

By Stuart Burns

A fair part of the bull story for copper this year has been supply-side fears.

The world’s largest mines are in South America, which has suffered from catastrophic levels of coronavirus infections. True, China’s recovery has played a role in the booster’s case. So have the role of copper in the growing electric vehicle (EV) market and the weakening U.S. dollar, which has lifted all commodities.

Copper outperforms other metals, including aluminum

But just comparing copper to aluminum, the latter lifted only in proportion to the weakening dollar. Meanwhile, copper has risen from March lows much more.

From April to date, aluminum has jumped some 20%, largely as a result of a weakening dollar and recovering Chinese demand sucking in imports. But copper has risen some 33%, driven by the same dynamics but with the added anxiety of supply-side risks from major suppliers in South America.

Coronavirus crisis in Peru, world’s No. 2 copper producer

Adjusting for population size, two of the countries hardest hit by infections in the world have been Peru and Ecuador. Both countries have seen more than 1,000 excess deaths per million inhabitants.

The two Latin American countries also have the highest excess percentage – excess deaths expressed as a share of normal deaths for the same period – suggesting the impact on their economies, health care systems and working practices may be even more severe than the official statistics suggest.

Developing economies like Peru cannot afford prolonged or repeated lockdowns. Like India, South Africa and many other countries, containment is at best local and at worst nonexistent.

Chile’s copper output perseveres

Yet, some copper producers have coped remarkably well, and their performance rather undermines the copper market’s supply anxiety.

Chile has maintained production at the majority of its copper mines. So far, Chile has seen relatively low levels of infection among mining communities.

In the first half of the current year, Chile’s copper output totaled 2.9 million tonnes, ResourceWorld reported. The total marked a 3.7% increase from the same period last year.

Remarkably, the volume of copper production in the country remains stable despite the overall drop in general industrial production in Chile, which was equivalent to -9%.

Most mining companies were swift to implement appropriate sanitary measures. Despite protestations from unions, the measures have been largely successful. State-owned Codelco, the world’s largest copper producer, increased its output by 4.7% in the first six months of 2020 on a year-over-year basis. Meanwhile, the wider Chilean population has seen infections top 400,000 as of the end of August and deaths exceed 10,000.

Not all mines, however, are equal.

Some projects have been suspended in recent months, the article reports, including Chuquicamata, one of the largest copper mines in the country. The mine produces more than 320,000 metric tons of copper per year.

Even Peru, badly hit by the pandemic, has seen copper production at least bounce back strongly with July’s figure, quoted by BN Americas at 199,000 tons, just 2% less than in the same month last year.

Market deficit

The market balance for copper remains in deficit. According to MetalBulletin, some 1.15 million tons of production were lost to the pandemic this year, with a further 672,000 tons lost due to other disruptions.

Demand has also faltered with industries across first Asia, then Europe, and finally the Americas, shutting down from February through June.

While many are now back at work, few are at capacity. Demand remains weaker than before the pandemic hit.

The market, however, may be more balanced than inventory levels suggest. The LME is down to 114,000 metric tons, half of which is lined up for physical load-out. At the same time, China has imported 440,000 tons more copper in the first half of this year than last. While ore imports are flat, scrap imports are down some 50%. Reuters reports there is much speculation the state is stockpiling copper, suggesting current imports are not necessarily a result of end-user demand.

All this suggests that while copper may have further to rise, its fundamentals are not as solid as bulls would have us believe.

There is a strong element of speculation in the strength of market price rises. If the supply market can maintain its output, one plank of the bulls’ narrative going forward may prove to be less supportive than has been the case so far.

Editor’s Note: The summary bullets for this article were chosen by Seeking Alpha editors.





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Gold prices gain as euro strength pressures the dollar


Gold futures climbed on Thursday, poised to score a third straight session gain, as strength in the euro in the wake of the European Central Bank’s decision to leave its policy unchanged pressured the U.S. dollar.

The European Central Bank left its policy unchanged at minus 0.5% and its refinancing rate at 0%, while reaffirming it plans to leave rates at present or lower levels until inflation rises to converge with its target at 2%.

In a news conference, ECB President Christine Lagarde said the Governing Council “extensively” discussed the recent strength of the shared currency, but reiterated that the bank doesn’t target the exchange rate. A Bloomberg report, meanwhile, said that members of the council had agreed to not overreact to euro strength.

“The ECB has confirmed that there is no further need for additional help,” said Naeem Aslam, chief market analyst at AvaTrade, in a market update. “For traders, the ECB’s confidence in the Eurozone’s economy is a good thing and this is the reason that we have seen the EUR/USD moving higher.”

In Thursday trading, the euro
EURUSD,
+0.80%

 traded at up 0.8% at $1.19, but that helped pull the ICE U.S. Dollar Index
DXY,
-0.45%

 down by 0.5% to 92.802. A weaker dollar can provide support for assets priced in greenback, making them less expensive to overseas buyers.

December gold
GCZ20,
+0.87%

GC00,
+0.87%

was up $18.60, or 1%, at $1,973.50 an ounce, following gains in each of the last two sessions.

December silver
SIZ20,
+1.98%

SI00,
+1.98%

traded 54 cents, or 2%, higher at $27.62 an ounce after climbing 0.3% in the previous session.

In U.S. economic news Thursday, the number of American who applied for unemployment benefits through state and federal programs in the week ended Sept. 5 was unchanged at a seasonally adjusted 884,000, the Labor Department said. Still, continuing jobless claims, the number of people already receiving benefits rose by 93,000 to a seasonally adjusted 13.39 million in the seven days ended Aug. 29.

“The mixed bag of economic data confirms that there is gradual recovery for the U.S. economy,” said Aslam. “However, things are not improving and this is the reason that we are seeing improvement in the gold price. It is likely that the bottom is in for the gold price and it is likely to continue to move higher.”

Other metals traded on Comex also moved higher Thursday. December copper
HGZ20,
+0.04%

traded at $3.0545 a pound, up 0.1%. October platinum
PLV20,
+1.89%

 added 2% to $943.50 an ounce and December palladium
PAZ20,
+1.19%

 climbed 1% to $2,342 an ounce.



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Gold prices inch higher, but aims for first monthly loss in 6 months


Gold futures inched higher on Monday as the U.S. dollar weakened slightly, but prices still looked to end lower for the month, in the wake of five consecutive monthly gains.

Overall, bullion continues to be viewed as a haven in the face of the COVID-19 pandemic, and the precious metal drew increased attention last week after the Federal Reserve said it is shifting to a policy of average inflation targeting which would effectively see policy makers end the practice of pre-emptively hiking interest rates to stave off inflation. That setup is viewed as a bullish one for gold, which is viewed as a hedge against rising inflation.

Read:Fed’s Clarida says new inflation-fighting strategy has roots in failure of old approach

Expectations for a low-rate regime in the U.S., and in much of the developed world, and softness in the U.S. dollar also has boosted appetite for gold, experts say.

“Gold will continue to be one of the best beneficiaries of the dollar’s weakness so expect to see a retest above $2,000 in the upcoming weeks,” wrote Hussein Sayed, chief market strategist at FXTM, in a Monday note.

December gold
GCZ20,
+0.02%

GC00,
+0.02%

was up $6.20, or 0.3%, at $1,981.10 an ounce. Gold’s latest move comes as the U.S. dollar was off 0.3%, as measured by the ICE U.S. Dollar Index
DXY,
-0.26%
,
a gauge of the buck against a half-dozen currencies.

The most-active December silver contract
SIZ20,
+2.06%

SI00,
+2.73%
,
meanwhile, added 52 cents, or 1.9%, at $28.31 an ounce.

Hope for some pickup in economic activity, amid optimism over potential coronavirus treatments, also has boosted appetite for silver, which is viewed as both an industrial and precious metal. China’s official gauge of business activity expanded faster in August, with the nonmanufacturing purchasing managers index rising to 55.2, compared with 54.2 in July.

For the month, gold was trading down about 0.3%, while silver surged roughly 16%, according to FactSet data.

Investors are “deferring to a slowing in the pace of growth improvement and U.S. election uncertainty coming into keen focus as the reason to own gold and remain short the dollar,” said Stephen Innes, chief global markets strategist at AxiCorp, in a market update.

“I suspect this week’s jobs data could be a lively affair,” he added. U.S. August nonfarm payrolls data are due Friday.

Among other metals traded on Comex, December copper
HGZ20,
+1.12%

traded at $3.0475 a pound, up 1%, while October platinum
PLV20,
+0.40%

tacked on 0.2% to $942 an ounce and December palladium
PAZ20,
+3.29%

added 2.5% to $2,286.90 an ounce.



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Global dividends suffer worst quarterly fall since financial crisis


Global dividend payments plunged to their lowest level in more than a decade, as companies moved to protect their balance sheets amid the pandemic, dealing a massive blow to investors that rely on the payouts for growing their wealth.

Total shareholder payouts fell by $108 billion to $382 billion, the lowest second-quarter total since 2012, according to Janus Henderson’s index of global payouts, published on Monday.

The 22% decline was the worst since the asset manager launched the index in 2009.

In a best-case scenario, Janus Henderson now expects global dividends to fall 19% on an underlying basis this year, paying $1.18 trillion. The worst-case scenario could see payouts drop 25%, paying $1.10 trillion.

“Despite the cuts witnessed so far, we still expect global dividends to exceed $1 trillion this year and next,” said Jane Shoemake, investment director, global equity income at Janus Henderson.

Nestlé
NESN,
+0.47%
,
Rio Tinto
RIO,
+0.18%
,
and China Mobile
941,
+1.11%

were the three biggest dividend payers, the report found, while Microsoft
MSFT,
+0.75%

was the sixth-biggest payer, followed by AT&T
T,
+0.39%

in seventh place.

Opinion:Three dividend stocks of cash-flow-rich companies poised to thrive during this economic crisis

Dividends fell in every region of the world, except in North America, thanks in particular to resilience among Canadian companies, where dividends grew 4.1%. This makes Canada one of only two major countries to see payments increase.

Only 10% of U.S. companies cut their payouts, with the “vast majority” choosing instead to suspend stock buybacks, which totaled $700 billion in 2019, according to estimates by Goldman Sachs.

Blue-chip names in the U.S. that cut payouts included Boeing
BA,
+3.89%
,
General Motors
GM,
+5.11%
,
Halliburton
HAL,
+3.05%

and Walt Disney
DIS,
+1.74%
.

The report noted that U.S. companies set their dividends once a year and pay them in four equal installments starting from the fourth quarter, meaning investors are more likely to see the impact of the pandemic on payouts near the end of the year.

The worst-affected regions were Europe and the U.K., which saw falls of 45% and 54% respectively on an underlying basis.

Read:Pandemic ‘wrecks’ FTSE 100 dividend outlook for 2020, as U.K. payouts fall to lowest levels since 2014

Shoemake said most European companies pay just once a year in the second quarter, so a dividend cancellation has a disproportionately large impact on the annual total, but it also means 2021 should show a rebound in Europe. “For the U.K., the rebound will be smaller as several companies, not least oil giants Shell and BP, have taken the opportunity to reset their payouts at a lower level,” she said.

In April, Royal Dutch Shell
RDSA,
+2.38%

lost its crown as the world’s largest dividend payer as it slashed payout for the first time since World War II, while in August, BP
BP,
+1.82%

cut its dividend in half after the oil major posted a $16.8 billion loss for the second quarter.

However, several U.K. companies have in recent weeks announced plans to restore dividends. On Monday, Bunzl
BNZL,
+2.45%
,
the FTSE 100-listed distribution group, said it would restate its previously suspended final dividend following a better than expected trading performance during the first half of the year.

France, Europe’s largest dividend payer, saw total dividends reach their lowest level in at least a decade, though some of the lost French income will be restored later in 2020, Janus Henderson said.

Read: Europe’s Banks Told to Hold Off on Dividends

Almost half of Europe’s dividend cuts came from the banking sector, as regulatory pressure from the Bank of England to free up capital during the coronavirus crisis saw HSBC
HSBC,
+1.10%
,
Standard Chartered
STAN,
+0.97%
,
Barclays
BCS,
+0.53%

and Lloyds Banking Group
LLOY,
+0.16%

all canceling their payouts.

In July, the European Central Bank said lenders should refrain from paying dividends and buying back shares until January 2021, to help banks absorb losses during the pandemic.



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Did Warren Buffett just bet against the U.S. economy? His latest investment raises some questions


Warren Buffett has long been critical of gold as an investment, saying it “has no utility” and that the “magical metal” is no match for “American mettle.” He once wrote that “Anyone watching from Mars would be scratching their head” over how we treat the shiny stuff on this planet.

Yet the Berkshire Hathaway
BRK.A,
-0.58%

boss just acquired nearly 21 million shares of Barrick Gold
GOLD,
-0.55%

worth $563 million, while selling shares of Wells Fargo
WFC,
+1.11%

and JPMorgan Chase
JPM,
+0.03%

, according to 13-F filings released Friday afternoon.

The move kicked up buzz among gold bugs and other Wall Street watchers across the internet, who saw Buffett’s trades as perhaps signalling a shift in his views on the market.

The popular Zero Hedge blog took a deep dive into Buffett’s repositioning, saying that it’s “a signal that none other than the Oracle Of Omaha appears to now be quietly betting against the United States,” because “the famously anti-gold investor has abandoned banks — the backbone of America’s credit-driven economy — in favor of a gold miner.”

Of course, while gold bugs and staunch market bears come up with their own conclusions, Berkshire is still, nevertheless, deep into the banks, including Bank of America
BAC,
+0.45%

, where it’s been pouring its money into over the past month.

Mike Shedlock of Sitka Pacific Capital Management took exception to the interpretation of the news, explaining in a blog post that it’s as simple as “Buffet knows financials are struggling due to COVID. And Barrick pays a dividend.” Furthermore, Barrick is merely a tiny piece of his overall pie, and Buffett didn’t back off his stakes in Amazon
AMZN,
-0.41%

or Apple
AAPL,
-0.08%

.

“This is neither a huge cave-in nor a fundamental sea of change regarding gold,” Shedlock wrote. “Potentially it is a short-term sell signal that corresponds to the recent pullback.”

Meanwhile, the stock market continues to stalk record highs. The Dow Jones Industrial Average
DJIA,
+0.12%

closed with a 1.8% weekly gain, while the S&P 500
SPX,
-0.01%

briefly traded at a record before ending the week up less than 1%. The Nasdaq Composite
COMP,
-0.20%

finished barely higher for the week, as well. The index has posted 32 records so far in 2020.

Barrick Gold, at last check, was up more than 8% after hours.



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