Weekly Investment Insights – Copper The rally endures
Highlights
- Copper prices have come under pressure as optimism around US infrastructure plans wane and supply disruptions are resolved.
- While speculative positions have moderated the price falls have not been overly dramatic, reflecting the strength of fundamentals underpinning the red metal.
- The metal is likely to receive support from key technical levels that are within close range, while momentum indicators already show bearish forces abating.
- The medium term bullish outlook for copper remains intact.
Over the past five months the price of copper has risen by a quarter (from around $4,650/ton to $5,865/ton*) as optimism over Trump’s proposed infrastructure spend collaborated with a strong underlying fundamental story of persistent market deficits (seven years from 2010) and supply disruptions. The climb in price was tracked by a sharp accumulation of speculative futures positions, with the net figure at one point reaching 2.5 times its long term five year average.
In recent days the outlook has been altered. The failure of Trump to secure his repeal of the Affordable Care Act has thrown into question his ability to pass more substantial spending measures. In addition, disruptions at the world’s two largest copper mines in Chile and Indonesia have both been resolved driving net speculative positioning down by 27% over the past two weeks. In the face of these developments the copper price has still managed to remain buoyant, highlighting the underlying fundamental strength underpinning the red metal.
In our view, over the short to medium term, the price of copper looks well placed to continue to trade near its recent range with risks skewed to the upside.
Despite market focus on the success of infrastructure plans in the US, demand from the world’s dominant consumer, China (accounting for over 50% of refined copper demand), continues to be robust. This is likely to remain the case as Chinese authorities maintain accommodative monetary measures ahead of the 19th National Congress of the Communist Party in autumn. From a more structural perspective, the growing use of more environmentally friendly, but copper intensive, electrical vehicles should keep global demand ample in the future.
Technically speaking, the copper price is within $90/ton or roughly 1.4% of its 23.6% Fibonacci retracement (from its recent run higher) and its 100 day moving average (DMA). Both these levels will provide near term support for the metal. In terms of upside, resistance could be met at the psychological $6,000/ton level or its February high of $6,202 /ton. Momentum indicators show that the current downward pressure on copper is limited in strength and is already turning.
For more information contact:
ETF Securities Research team ETF Securities (UK) Limited T +44 (0) 207 448 4336 E info@etfsecurities.com
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