In an April 10 Barchart recap of the base metals performance in Q1 2024, I concluded:
The price action in early Q2 is bullish, but China’s economy, U.S. interest rates, and the path of least resistance of the U.S. dollar will determine the base metal’s price paths. Keep an eye on inventories for fundamental clues, but the trend is always your best friend, and it is bullish in early Q2 2024.
May COMEX copper futures were trading at the $4.2265 per pound level on April 5, with the three-month LME copper forwards at the $9,359 per ton level. Prices have moved higher over the past weeks.
Copper futures and forwards rally to the highest price since April 2022
Nearby COMEX copper futures and LME copper forwards have made significant upside progress since April 5.
The chart highlights the 8.4% gain from $4.2665 on the July futures contract on April 5 to $4.6255 on May 6.
Three-month LME copper forwards gained 6.2%, moving from $9,329.50 to $9,910.00 as of May 3.
A gateway to new highs
Copper experienced a bullish technical breakout over the past weeks.
The long-term LME copper chart shows the move above technical resistance at the April 2024 $10,208 high could be a gateway to the record $10,845 per ton March 2022 record peak.
Similarly, the rally past the January 2023 $4.3145 COMEX futures high could send copper futures towards a challenge of the March 2022 $5.01 per pound technical target.
The factors supporting copper prices
The following factors support higher highs in copper:
- The technical trend has turned higher since the July 2022 and October 2023 bottoms, and the trend is always your best friend.
- Addressing climate change with green energy initiatives has opened a significant demand vertical for the metal, changing copper’s fundamental supply-demand equation. Electric vehicles, wind turbines, and other green energy products require increasing amounts of the red nonferrous metal.
- Bringing new copper production online is time-consuming, often taking up to a decade. With many new mining projects in the Democratic Republic of Congo, historical corruption and other challenges add elements of risk to the new anticipated output.
- Robert Friedland, a mining legend and founder and co-chairman of Ivanhoe Mines Ltd, a minerals and metals producer, has stated that copper’s price needs to rise to $15,000 per ton to spur new mines. At $15,000 per ton, nearby COMEX futures would be trading over the $6.80 per pound level.
When technical and fundamental factors line up, it presents a compelling case for higher copper prices.
The issues that could cause a correction
China is the leading refined copper consumer, as it is the world’s second-leading economy and copper is an essential infrastructure building block.
Source: Statista
As the chart illustrates, China consumed more than half of the world’s refined copper supplies in 2022. China is the dominant copper consumer. Economic malaise in 2023 weighed on copper prices. A continuation of weak conditions in China could delay copper’s ascent, as physical demand would suffer, and copper could run out of its current upside steam.
Meanwhile, another correction could present a golden buying opportunity when the Chinese economy roars back.
CPER is the ETF that tracks copper prices
The most direct routes for a copper investment are the COMEX futures and LME forwards. The U.S. Copper ETF product (CPER) provides an alternative for traders and investors looking for exposure without venturing into the futures or forwards arena. At $28.80 per share on May 6, CPER had over $197 million in assets under management. CPER trades an average of nearly 200,000 shares daily and charges a 0.88% management fee.
The chart shows the 8.5% rally from $26.54 on April 5 to $28.80 per share on May 6, as CPER has done an excellent job reflecting gains in COMEX copper futures and LME copper forwards.
Copper is on a path to challenge the March 2022 high, with compelling reasons to rise to a new all-time peak. If China’s economy improves and copper requirements rise, the nonferrous metal could reach new record levels in 2024.
On the date of publication, Andrew Hecht 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.
