Copper is a critical industrial metal for infrastructure building and increasingly for green energy initiatives.
Many traders and investors view copper’s price action as a barometer of global economic growth or contraction, earning the red metal the nickname Doctor Copper, as the nonferrous metal’s price action reflects the health and well-being of the worldwide economy.
In March 2022, copper prices soared to $5.01 per pound. Goldman Sachs called copper “the new oil,” forecasting the price would eventually reach $6.80 per pound or higher as green energy demand will cause supplies to struggle to keep pace with the increasing demand.
Meanwhile, copper prices corrected to $3.15 per pound four months later, in July 2022, as even the most aggressive bull markets rarely move in straight lines. At just below the $3.65 per pound level on October 10, the nearby copper futures price is below the midpoint of the 2022 high and low.
Bullish and bearish factors are pulling copper in opposite directions in Q4 2023.
Copper prices remain in a long-term bullish trend
- Before 2005, COMEX copper futures never traded above $1.61 per pound.
- Copper futures have made higher lows and higher highs since reaching a 60.50 cents per pound low in late 2001.
- Copper is a volatile metal, with the latest peak in March 2022 at $5.01 per pound.
- Copper has not traded below the 1.61 level since 2009.
The bullish case
- Copper is a critical input in green energy initiatives, including electric vehicles, wind turbines, and other technologies combatting climate change.
- The London Metals Exchange is the international hub for worldwide physical copper trading- LME inventories have been trending lower, making lower highs and lower lows, since 2019.
- Copper production costs have been rising as inflation has increased energy, labor, financing, and other costs of extracting copper ores from the earth’s crust and processing the ores into refined copper metal products.
- Copper is critical for infrastructure-building projects.
- Demand has outstripped mine supplies over the past years.
- Bringing new copper mines online takes nearly a decade.
- The long-term trend over the past decades has been bullish.
The bearish case
- China is the world’s leading copper consumer. Chinese economic weakness has weighed on the country’s demand.
- Rising interest rates increase the cost of carrying all raw material inventories, and copper is no exception.
- The dollar is the world’s reserve currency. A rising dollar tends to weigh on copper and other commodity prices. The dollar index has risen from below 100 in July 2023 to over 105 level in the past months.
- The medium-term copper trend since the 2022 high has been bearish.
Stocks and ETFs that move higher and lower with copper
- Freeport McMoRan (FCX) and Southern Copper (SCCO) are leading copper-producing companies. The shares move higher and lower with the red metal’s price.
- Glencore (GLNCY), BHP Limited (BHP), Rio Tinto (RIO), and Vale SA (VALE) are leading worldwide nonferrous and ferrous metal-producing companies.
- Copper is the leader of the base metals trading on the London Metals Exchange, including aluminum, zinc, nickel, lead, and tin. Aluminum, zinc, and copper are the most liquidly traded LME metals. The Invesco DB Base Metals Fund owns a portfolio of Aluminum, zinc, and copper derivatives, moving higher and lower with the metal’s prices.
- The U.S. Copper ETF (CPER) tracks COMEX copper futures prices.
Copper is a leading commodity and economic indicator
- Copper’s recent price weakness reflects the increasing interest rates and the potential for recessionary pressures.
- China is the second-leading worldwide economy. The current economic weakness has weighed on copper and other metals prices. However, when China emerges from its financial malaise, copper prices could soar as demand for infrastructure building grows.
- Keep an eye on copper, as the metal’s price path could signal market sentiment shifts over the coming weeks and months.
Thanks for reading, and stay tuned for the next edition of the Tradier Rundown!