Breaking News
Get 40% Off 0
Is NVDA a 🟢 buy or 🔴 sell? Unlock Now

Is Copper Stronger Than It Seems?

By Gwen PrestonCommoditiesSep 17, 2018 14:23
ca.investing.com/analysis/is-copper-stronger-than-it-seems-200197598
Is Copper Stronger Than It Seems?
By Gwen Preston   |  Sep 17, 2018 14:23
Saved. See Saved Items.
This article has already been saved in your Saved Items
 
 
Copper
-1.64%
Add to/Remove from a Portfolio
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 
0P6E
0.00%
Add to/Remove from a Portfolio
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 

The analysts at Scotiabank made a nice argument that copper is set up for a near-term rally and backed up their argument with a collection of charts. I am absolutely bullish on copper in the medium term, as I am confident a supply deficit looms unless the entire world goes into a significant recession.

But I thought I’d go through Scotia’s argument about the near term, as food for thought.

Setting the stage: Worries about global trade wars and slowing growth in China have punished the price of copper, which is now down 19% since mid-summer.

Copper is the second-worst performing metal in 2018 year to date; only zinc has fallen further, but it did so after making immense gains in the previous 18 months.

Scotia’s analysts think there’s reason to think copper is doing better than its spot price suggests – which if true would mean the spot price is set to soon play catch up.

First, copper inventories on the London Metal Exchange have declined sharply since April. The same is true in Shanghai, where warehouses have seen similar drawdowns. Both suggest demand remains robust.

Another good way to test the waters of copper demand is to see how much of a premium over the spot price traders are paying to get their hands on high quality copper cathode today. In Shanghai, those copper cathode premiums have risen substantially over the last two months, from US$68 per tonne in July to US$90 per tonne today.

In general, higher premiums indicate rising demand for copper in China, which makes sense in light of the restrictive tariffs Beijing recently placed on imports of scrap copper from the U.S.

To me, copper is a market where today’s macro anxieties have overwhelmed tomorrow’s strong fundamentals. That will not last long because copper is such an active market.

The world consumes 21 million tonnes of the red metal each year, a scale that means copper traders are buying and selling for their clients every day, no matter what pundits, politicians or investors might be thinking.

Anxieties can drive the spot price, as investors play the speculative side of copper. But underneath those actions, traders are paying what they need to pay – such as a $90-per-tonne premium – to get the metal they need. When investor sentiment and trading realities diverge, like they have right now, it’s only a matter of time before reality catches up.

I added First Quantum Minerals Ltd (TO:FM) to the Maven Metals portfolio recently because I wanted a stock with clear leverage to a rising copper price, which is what I expect over the next few years. With negative sentiment around global growth and trade having punished copper prices of late, now is an even better time to buy FM, with an eye to hold for months to years.

Is Copper Stronger Than It Seems?
 

Related Articles

Is Copper Stronger Than It Seems?

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind: 

  • Enrich the conversation
  • Stay focused and on track. Only post material that’s relevant to the topic being discussed.
  • Be respectful. Even negative opinions can be framed positively and diplomatically.
  •  Use standard writing style. Include punctuation and upper and lower cases.
  • NOTE: Spam and/or promotional messages and links within a comment will be removed
  • Avoid profanity, slander or personal attacks directed at an author or another user.
  • Don’t Monopolize the Conversation. We appreciate passion and conviction, but we also believe strongly in giving everyone a chance to air their thoughts. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
Comments (1)
TYLER DURDEN
TYLER DURDEN Sep 17, 2018 15:22
Saved. See Saved Items.
This comment has already been saved in your Saved Items
I should have bought at $3 when I was looking at it.
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Continue with Google
or
Sign up with Email