COMEX copper futures moved 9.57% higher in Q2 and were 12.85% higher over the first half of 2024. Nearby COMEX futures settled at $4.3905 per pound at the end of Q2 after trading to nearly $5.20 per pound during the second quarter. Three-month LME copper forwards moved 8.26% higher in Q2 and were 12.15% over the first half of this year. The LME forwards were at $9,599 per ton at the end of June.
Meanwhile, copper forwards and futures have declined since the end of Q2 and are threatening to challenge the $4 per pound level on the COMEX futures. While the trend is always your best friend in markets across all asset classes, and the path of least resistance since May is bearish, the long-term trend remains bullish, suggesting the red metal will find a bottom sooner rather than later. The U.S. Copper ETF product (CPER) tracks the nonferrous metal’s price action.
Copper corrects
After trading to a nearly $5.20 per pound high in May 2024, COMEX copper futures prices have dropped and are below the Q2 closing level.
The chart highlights that After closing Q2 at $4.3915 per pound, nearby September COMEX copper futures have declined to around the $4.10 level.
Three-month LME copper forwards reached a record $11,104.50 per ton in May, closed Q2 at $9,599 per ton, and were lower, around the $9,050 level in early August.
China is a critical factor in copper prices
China is virtually tied with India as the world’s most populous country but has the second-leading global economy. China is also the world’s leading commodity consumer, consuming over half the world’s refined copper. Therefore, the Chinese economy is a critical factor in global copper demand and prices.
Chinese economic growth has slowed over the past years. Copper’s strength and rise to a record high in May 2024 signifies copper’s underlying strength. Copper is a crucial input in infrastructure building. However, addressing climate change has opened a new demand vertical, as copper is an ingredient in EVs, wind turbines, and other green energy initiatives. Many analysts believe copper is the new crude oil, leading to a struggle for global supplies to pace with rising demand over the coming years. New mine production requires a higher price to sustain projects. If the Chinese economy recovers, copper demand could suddenly soar, leading to even higher prices over the coming months and years.
Inventories have moved higher, weighing on prices
Meanwhile, copper inventories reflect Chinese economic malaise. The London Metals Exchange is the leading copper trading arena. At the end of 2023, LME copper inventories were at the 167,300-ton level. While copper stocks dropped to 112,475 metric tons at the end of Q1 2024, they rose over 60% to 180,125 tons at the end of Q2, a 7.67% increase from the end of last year.
On August 1, LME stocks stood at the 245,150-ton level, over 36% higher than at the end of June 2024.
The increase in LME copper stocks reflects the tepid Chinese demand, which has likely weighed on the red nonferrous metal’s price over the past weeks.
Long-term technical support remains far below the current price
The short-term trend in copper prices turned lower from the May 2024 record high.
The LME copper forward chart dating back to 2001 shows that the long-term trend remains higher with technical support below the market at the July 2022 $6,955 per ton low, over 24% below the current price level.
The long-term COMEX copper futures chart from the early 1970s shows technical support is over 23% below the current price at the July 2022 $3.15 per pound low.
The bottom line is that while the short-term copper trend is lower, the long-term bullish path of least resistance for prices remains firmly intact.
CPER is the copper ETF product
Rising inventories and Chinese economic weakness have caused copper prices to fall from the new record May 2024 high. After declining more than a dollar a pound, copper offers value at the current price level. However, picking bottoms is virtually impossible in any market as prices can decline to illogical, irrational, and unreasonable levels that defy fundamental and technical analysis. Therefore, any long copper positions should leave plenty of room to add on further declines.
The most direct route for a copper risk position is the COMEX copper futures market or the LME copper forwards. The futures and forward arena offer options on the red metal. Meanwhile, the U.S. Copper ETF product (CPER) tracks copper prices and is available for standard stock market accounts. At $25.74 per share, CPER had over $171.58 million in assets under management. CPER trades an average of over 188,800 shares daily and charges a 0.88% management fee.
COMEX September copper futures rose 37.8% from $3.7235 on February 9, 2024, to $5.1310 on May 20, 2024. The decline has taken the futures 21.5% lower to $4.0300 on July 30.
Over the same period, CPER rose 38.7% from $22.81 to $31.63 per share, and declined 20% to a $25.29 per share low on July 23. The ETF does an excellent job tracking copper prices.
I believe the current correction in copper prices is a buying opportunity. While I favor a long position at the current price level, I will leave plenty of room to add on further declines as picking bottoms is dangerous, and prices have more downside room before threatening the long-term bullish trend.
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.
