To understand when we can expect a rise in copper prices, we must understand the current state of the copper market. The demand for copper has remained relatively high due to its use in various industries, such as construction, electronics, and transportation.
Furthermore, there are concerns over the sustainability of the current copper market. Many analysts believe that the current production levels are not sustainable to meet the current demand for copper and that we may soon reach a peak in copper production. Could this lead to a rise in copper prices as the supply becomes more limited?
Overall, while it is difficult to predict precisely when copper prices will rise, understanding the current state of the market and the various factors impacting it can help us make more informed forecasts.
Factors that affect copper prices
A factor to consider is the global economy. When the economy is doing well, the demand for copper tends to increase, leading to higher prices. Conversely, when the economy is struggling, demand for copper may decrease, causing prices to fall.
China is the world's largest consumer of copper, followed by the United States (US.) During the pandemic, China had one of the strictest lockdowns of any other nation. Resulting in a devastated economy, and it is still struggling to regain traction three years later. Recently the Chinese Communist Party (CCP) reduced the savings rate on all banks to nearly zero percent with the intention that Chinese citizens would withdraw their funds from banks and begin spending it to stimulate the Chinese economy.
Many investors assumed the Chinese economy would return overnight when China announced it removed the pandemic lockdown restrictions. That was a mistake; analysts now compared China's current economic problems to Japan's crisis years ago. The result will be less demand from the world's largest consumer of copper.
The second largest consumer of copper is the US, facing problems with a looming recession. At the recent Federal Open Market Committee (FOMC) meeting, they announced signs that the economy is slowing, and they paused raising interest rates for the first time in their recent inflation-fighting campaign. Inflation has already drained many consumers' cash reserves, and they are now using credit cards to purchase daily necessities as consumer credit card debt nears 1 trillion dollars. The question becomes, how much damage was done to the economy with all of these rate hikes?
Considering that consumers make up 2/3s of the Gross Domestic Product (GDP) with their spending habits, we should see the first signs of the recession in early to late Winter. As the consumer feels giddy and abundant during the warm summer months, the winter season is when financial stresses arise.
How to anticipate copper market seasonality
Anticipating copper market seasonality can be a challenge, but there are some things you can do to stay ahead of the game. The first step is understanding the copper price movement patterns over time. One of the most important things to know is that copper prices tend to be higher in the winter months and lower in the summer months. This is partly due to increased demand for construction material made of copper for the upcoming Spring building season demand.
Factors that could disrupt seasonal patterns are global supply and demand for copper, which economic and geopolitical factors can influence. Keeping up with news and trends in the global economy and politics can help you anticipate changes in copper prices.
Additionally, monitoring supply chain disruptions and labor strikes in copper-producing countries is crucial. These events can cause sudden spikes in copper prices. By staying informed and monitoring copper prices regularly, you can anticipate market seasonality and make informed decisions about buying or selling copper.
Source: Moore Research Center, Inc. (MRCI)
Copper market seasonality refers to the cyclical movement of copper prices throughout the year. If you're involved in the copper market, you know that prices can be volatile. Whether you're a copper producer/processor, trader, or investor, understanding the seasonality of the copper market can help you make more informed decisions and maximize your profits.
MRCIs research reveals the seasonal pattern of higher prices in the Winter and lower prices in the Summer months annually. The Winter rally usually begins around October and terminates in February or March. From there, prices tend to drop into the Summer months, where it consolidates from June to October. We are currently in the consolidation window and should expect a significant sideways trading range until the seasonal demand overwhelms supply in October.
The Commitment of Traders (COT) report
The daily September copper market chart displays the posture of the managed money category of traders (blue line). By nature, their trading style is trend-following. As prices increase, notice how the blue line increases; the line trends down as prices decrease.
The recent rally from October 2022 to the February 2023 highs shows managed money buying copper during the seasonal uptrend. As the price peaked in February, managed money began selling the long positions (blue line dropping), and prices trended lower. The current rally in copper has some more room to rally based on the MRCI seasonal pattern. Typically, this rally will stall mid-July and begin the sideways market conditions until October.
In closing
As we advance, the key will be monitoring the economy for signs of expansion or contraction as we enter October. If, for some reason, the economy is expanding, perhaps using the standard-size or micro-sized copper futures contracts and the exchange-traded fund (ETF) for copper JJC to participate in the rally is logical.
Monitor China's economic activity, and if there are signs of a recovery, this will add an edge to the October seasonal rally.
On the date of publication, Don Dawson did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
