The Copper Supply Disruption and Technical Analysis – Blue-Sky Territory

A rally in certain technology stocks (Magnificent Seven) that began last year with the speculation of artificial intelligence (A.I.) infrastructure needs and the concurrent push for green energy has amplified the fresh demand for copper. That occurred as supply passed a shortage tipping point where copper mines are unable to match existing demand. Additionally, the global economy continues to suffer from higher inflation dynamics at a time when recent escalations toward WW3 (“Little Green Men” Part XXIII and Twitter thread) have numerous countries taking prudent measures to stockpile or hoard various commodities that can sustain wartime industrialization amid Western sanctions. All of those factors contributed to spiking the price of copper over the last three months to an all-time high last week. I wrote about the imminent supply shortage in April 2019 with “The Copper Supply Disruption and Technical Analysis” Part 1 (thread) and a follow-up analysis (thread) published in January 2023. Here is a graphic and excerpt:

“The price of copper subsequently rallied 75% to its most recent high in March 2022. CME Group copper futures on the COMEX rallied this winter after a pullback last spring and summer and a brief consolidation in the fall. The expected shortage scenario coming to fruition and China’s reopening of its economy are contributing factors to copper’s rally. A survey published by Bloomberg this week found that investors anticipate copper to be a top-performing commodity in 2023… Copper is in everything all around us. It makes reading the words on your electronic device of choice via an Internet connection possible. The expansion of electric power and modern telecommunication requires an ever-increasing amount of copper and other materials. Traditional industries like plumbing and construction are a given, but electricity is the pillar of a greenie transition to alternative energy sources that require a huge amount of copper. It’s projected that by 2035, the demand for copper will have doubled.” – TraderStef, Jan. 2023

Several financial institutions and publications began hawking copper earlier this year and are now sounding the alarm that a copper supply crisis has arrived. They’re opining that a higher copper price is needed to incentivize investment into new discoveries and mining operations. This prompted funds to pile into copper contracts as sanctions implemented by the West against Russia on certain metals went into effect in mid-April.

Global Metals Markets Face Uncertainty as Russian Ban Takes Effect… “By now, anyone in the metals market will know that the U.S. and UK recently banned the consumption of Russian aluminum, copper, and nickel produced from April 13 onward. While metal already on the London Metal Exchange (LME) and the Chicago Mercantile Exchange (CME) are still available for consumption, no metal delivered after this date is acceptable. This holds true whether buyers purchase the metal directly or have it physically delivered to the exchange to settle a contract.” – OilPrice.com, Apr. 27

 

 

 

 

I suspect that the copper supply shortage will continue making headlines this year. If the Fed cuts interest rates in 2024, that will only add fuel to the fire for higher prices in the near-term with speculation-fueled spikes and volatility. Let’s close today with a few stocks to consider for your watchlist, a technical analysis of copper futures and the $COPX ETF chart, and an interview with the CEO from one of the largest mining operations in the world.

A passive vehicle to invest in copper miners is an ETF instead of diving into copper futures. The following three ETFs have direct exposure to the copper mining market. They are sorted by average daily volume:

• Global X Copper Miners ($COPX)
• United States Copper Index Fund, LP ($CPER)
• iPath Bloomberg Copper Subindex Total Return ($JJC)

If you prefer to invest or trade individual copper mining stocks, extra due diligence is required before putting your capital to work. Mining operations are businesses that are located throughout the world. An investor or trader should take into consideration the technical analysis of a company’s stock chart, its executive team, financial health, all-in sustaining costs (AISC) per unit of weight mined, production capacity, and any geopolitical or local issues that may impact a mining operation and its stock price. The following companies are considered the copper industry’s top mining stocks. They are sorted by average daily volume:

• Freeport-McMoRan Inc. ($FCX)
• Hudbay Minerals Inc. ($HBM)
• BHP Group Ltd. ($BHP)
• Rio Tinto PLC ($RIO)
• Teck Resources Ltd. ($TECK)
• Southern Copper Corp. ($SCCO)

Copper’s over-the-counter (OTC) and futures pricing were 24% higher year-to-date at last week’s close at $4.80 per pound after printing an all-time high of $5.20 (+34%) on May 20. Copper remains bullish, but caution is warranted with volatility going forward.

“The standard copper contract is 25,000 lbs. Copper is the third most widely used metal in the world. Chile accounts for over one third of world’s copper production followed by Peru, Democratic Republic of the Congo, China, United States, Australia, Indonesia, Zambia, Canada, and Poland. The biggest importers of copper are China, Japan, India, South Korea, and Germany.” – Trading Economics

CME COMEX Copper Futures monthly chart as of May 27, 2024…

 

$COPX ETF weekly chart as of May 24, 2024 close…

 

Freeport-McMoRan CEO on copper: We’re on a trend to have a very serious shortage – CNBC, May 21

 

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TraderStef on Twitter / Website: TraderStef.com

Headline Collage Art by TraderStef