Copper prices have rallied 12% since the start of the year, but is it set for a fall?
Copper serves as a global indicator of economic health. "We trust copper because it's used in everything," explains Dow Jones Newswires reporter Tatyana Shumsky. It is an essential component in everyday products like cell phones, plumbing parts, and electrical wires.
China, being a lead manufacturing nation, consumes about 40% of the world's copper output. It is closely watched for any changes in manufacturing activity.
So it was with joy that analysts learned China's official purchasing managers' index, released Thursday, increased for a third month. The index rose to 51 in February, up slightly from 50.5 in January. Readings above 50 indicate growth.
Positive U.S. jobs data, which correlates with purchases of consumer electronics and electrical products, also boosted copper futures. Prices rose more than 1% on Thursday, bringing it within 2% of 2012 highs.
Optimistic investors should maintain some caution. February's global manufacturing data grew less than forecast, and Shumsky explained that industrial and manufacturing data from China doesn't quite match the high level of the country's copper imports. This means there could be an excess supply of copper lying in storage. It could also mean China is equipped with enough copper to keep new import demand from reaching expectations.
Reuters' Manolo Serapio Jr adds, "Analysts say Chinese demand has to recover strongly to justify a further increase in prices. While China's latest manufacturing data beat expectations, some think it could discourage more monetary easing by Beijing, which could dent copper demand."
Business section: Investing ideas
What do you think is the future of the copper industry?
If you're interested in tracking the performance of copper stocks, we list the four trading on the U.S. exchanges below. (Click here to access free, interactive tools to analyze these ideas.)
1. Freeport-McMoRan Copper & Gold
2. Lihua International
3. Southern Copper
4. Sterlite Industries (India)
Interactive Chart: Press Play to compare changes in analyst ratings over the last two years for the stocks mentioned above. Analyst ratings sourced from Zacks Investment Research.
Kapitall's Rebecca Lipman does not own any of the shares mentioned above. Data sourced from Finviz.