Head of Commodity Strategy
Copper and copper mining stocks continue to push higher with the futures prices in New York and London reaching levels last traded in June 2022. For the past two years, Dr. Copper aka the King of Green Metals has traded mostly sideways, navigating relatively unscathed through rough seas created by sharply higher funding costs as central banks around the world hiked interest rates to combat inflation, and not least a slowdown in China, the world’s top consumer of copper.
During the past couple of months, the metal has steadily climbed, buoyed by global growth and demand optimism, and material downgrades to 2024 mine supply increasingly tightening market conditions. Several mining companies have announced production downgrades due to factors like increased input costs, declining ore grades, rising regulatory expenses, and weather-related disruptions.
A jump in China’s exchange-monitored warehouse stocks to a four-year high would under normal circumstances be considered as market negative, but given the current economic challenges in China, some of the increase has potentially been triggered by traders hoarding liquid traded metals like gold and copper in anticipation of further yuan weakness.
Furthermore, the ongoing green transformation and increased use of AI applications are augmenting demand from traditional sectors like housing and construction, and together with the green transformation, we maintain our long-standing bullish stance on copper, and with copper miners also exhibiting signs of resurgence, the possibility of a fresh record high in the second half of the year appears achievable.
The above chart shows the year-to-date performances of two (out of several) exchange-traded products which track the performance of physical copper and mining companies involved with the production of copper. The COPX ETF shown tracks the performance of 38 mining companies, with the top four representing around 24% of the total exposure. They are Ivanhoe Mines Ltd (IVN:xtse), Antofagasta (ANTO:xlon), Lundin Mining Corp (LUN:xtse), and Southern Copper Corp (SCCO:xnys). Link: How to add copper exposure to your portfolio.
At the CRU World Copper Conference 2024, held in Santiago, Chile, this week, Trafigura’s CEO Jeremy Weir said, that in order to fill a potential supply gap of 8 million tons by 2034, mining companies need prices that are higher than USD 10,000 a ton (USD 4.54 a pound) and possibly as high as USD 12,000 (USD 5.44 a pound). Even the more conservative forecasters see demand growing by a third over the next decade, as governments and businesses step up investments in decarbonization. And therein lies the challenge with Bloomberg Intelligence estimating that over the past several years, the time from so-called first discovery to first metal has lengthened by an average of four years, to 14 with miners complaining that mountains of red tape are choking developments.
Having rallied to reach the January 2023 high at USD 9550 a ton in London and USD 4.355 a pound in New York, the short-term outlook may point to consolidation, but so far the strong dollar and weak economic data from China this week has not deterred traders and investors, with the technical outlook raising the prospect of an extension towards USD 4.75 a pound in New York and USD 10,500 in London. Having been quite slow to respond to the rally, hedge funds went on an aggressive buying spree in the week to April 9, more than doubling their net long High Grade futures position to 50.7k contracts, highest since October 2021. During the week in question, the volume weighted average price (VWAP) for the HGN4 contract was USD 4.31 and break below may potentially leave the market exposed to a small setback as long positions are being scaled back, potentially creating a fresh buying opportunity for others.
Commodity articles:
16 April 2024: Crude oil's risk premium ebbs and flows
12 April 2024: Gold and silver surge at odds with other market developments
10 April 2024: Record breaking gold highlights silver and platinum's potential
5 April 2024: Commodity market sees broad gains, enjoying best week in nine months
4 April 2024: What's next as gold reaches USD 2,300
3 April 2024: Q2 Outlook: Is the correction over?
3 April 2024: Cocoa: A 50% farmgate price boost a step in the right direction
27 Mar 2024: Crude oil maintains support amidst array of bullish signals
26 Mch 2024: Gold's behaviour points to sustained demand
20 Mch 2024: Attacks on Russian refineries lift risk premium and crude prices
19 Mch 2024: How to add copper exposure to your portfolio
15 Mch 2024: Commodity weekly: Green shoots seen across key sectors
13 Mch 2024: Lack of catalyst pushes crude into tightening range
8 Mch 2024: Commodity weekly: Gold and silver steal the limelight
8 Mch 2024: Investing with options - Gold optionality
6 Mch 2024: How to add gold exposure to your portfolio
6 Mch 2024: Video: What happened to the gold prices?
1 Mch 2024: Grains dip, cocoa soars, gold and oil see rays of strength: February’s commodity mix
Previous "Commitment of Traders" articles
15 April 2024: COT: Hedge funds propel multiple commodities positions beyond one-year highs
8 April 2024: COT: Speculative interest in metals and energy gain momentum
2 Apr 2024: COT: Gold and crude longs maintained amid strong underlying support
25 Mch 2024: COT: Hedge funds zoom in on crude, copper and silver
18 Mch 2024: COT: Hedge funds buying expands from precious metals to copper and grains
11 Mch 2024: COT: Specs rush back into gold, elevated yen short in focus
4 Mch 2024: COT: Underinvested speculators fuel gold's latest surge
2024: The wasted year
Markets are driven by election optimism, overshadowing growing debt and liquidity concerns. The 2024 elections loom large, but economic fundamentals and debt issues warrant cautious investment.
As US economic slowdown hints at a shift away from exceptionalism, USD faces downside with looming Fed cuts. AUD and NZD set to outperform as their rate cuts lag. JPY gains on carry unwind bets and BOJ pivot.
Amid AI and obesity drug excitement, equities see varied prospects: neutral on overvalued US stocks, negative on Japan due to JPY risks, positive on Europe. European defence stocks gain appeal.
With the economic slowdown, quality assets will gain favour, especially sovereign bonds up to 5 years. Central banks' potential rate cuts in Q2 suggest extending duration, despite policy and inflation concerns.
Commodities poised for rebound. The "Year of the Metal" boosts gold and silver, copper awaits rate cuts. Grains may recover, natural gas stabilises. Gold targets $2,300-$2,500/oz, copper's breakout could signal growth.
Markets are driven by election optimism, overshadowing growing debt and liquidity concerns. The 2024 elections loom large, but economic fundamentals and debt issues warrant cautious investment.
As US economic slowdown hints at a shift away from exceptionalism, USD faces downside with looming Fed cuts. AUD and NZD set to outperform as their rate cuts lag. JPY gains on carry unwind bets and BOJ pivot.
Amid AI and obesity drug excitement, equities see varied prospects: neutral on overvalued US stocks, negative on Japan due to JPY risks, positive on Europe. European defence stocks gain appeal.
With the economic slowdown, quality assets will gain favour, especially sovereign bonds up to 5 years. Central banks' potential rate cuts in Q2 suggest extending duration, despite policy and inflation concerns.
Commodities poised for rebound. The "Year of the Metal" boosts gold and silver, copper awaits rate cuts. Grains may recover, natural gas stabilises. Gold targets $2,300-$2,500/oz, copper's breakout could signal growth.
