Head of Commodity Strategy
Summary: Copper trades higher for a third day but still within its recently established consolidation range between $4 and $4.2/lb. The trigger behind the latest upside attempt came in response to a report from Goldman Sachs in which they forecast copper rising by more than 60% by 2025. This in order to attract increased production to met growing demand from the decarbonization push.
What is our trading focus?
COPPERUSMAY21 - HG Copper CFD
HGK1 - HG Copper future
COPX:arcx - Global X Copper Miners ETF
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Copper trades higher for a third day but still within its recently established consolidation range between $4 and $4.2/lb. The trigger behind the latest upside attempt came in response to a report from Goldman Sachs titled "Green Metals - Copper is the new oil". In it they raised their price forecasts now saying LME Copper will hit $15,000/t from the current $9,200/t by 2025. A 66% price increase that would set HG Copper on course for $6.5/lb from the current $4.15/lb.
The green transformation remains the key source of increased demand as usage in EV’s and renewable energy-energy projects such as solar and wind surges. At the center of the forecast is a warning from both Goldman’s and Trafigura Group that the market will be ‘drastically’ short of copper in the next few years unless prices rise sharply to spur supply. High start up capex and the 5 to 10 year period from investment decision to production could create a prolonged period of mismatch between surging demand and inelastic supply.
In the report the analysts at Goldman Sachs writes: “Copper is so integral to the green transition - a global effort underpinned by government support - that the supply requirements necessitate a spike in copper prices,”. Going on to say that “Copper prices must rise now to incentivize enough supply to solve prospective deficits, or risk chronic scarcity pricing in the second half of the decade.”
Following a 120% rally from the pandemic low last March, copper ran into a small correction and for the past six weeks the metal has been trading sideways within a relative range. Despite the loss of momentum which has attracted a 50% reduction in speculative longs held by CTA's and hedge funds, the behavior during this time points to a well supported market underpinned by strong fundamentals.
A renewed push beyond $4.20/lb is likely to drive a renewed focus on the 2011 record high at $4.65/lb as the next target.
As mentioned, the price of copper has following a 105% rally from the pandemic despair low last March spent the past six weeks consolidating in a relative tight range. The relative shallow correction lower to $4/lb in High Grade and $9000/t on LME has been supported by a seasonal rise - from a multiyear low - in stocks held at exchange-monitored warehouses in in New York, London and Shanghai. This has reduced the tightness in the market with the cash to 3's backwardation on LME returning close to flat. In addition, the Chinese Renminbi has weakened while speculators have cut bullish bets in HG copper futures by 50%, thereby inadvertently creating the foundation for the next bull run, once momentum returns in response to previous highs being broken.
The biggest short-term challenge remains ongoing developments in China, the world's top consumer. In an attempt to curb rising asset prices through the use of leverage accounts, the People's Bank of China has been tightening liquidity. One of the biggest casualties so has been the stock market where the CSI 300 has lost 18% since hitting a decade high back in February.
2024: The wasted year
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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.
