Copper was trading at just over the $3.70 per pound level on the nearby COMEX futures contract when I wrote, “Copper remains in a bearish trend in mid-November 2023, but the recent price action has not diminished my long-term bullish bias toward the red metal.”
Copper is a bellwether industrial commodity that is highly sensitive to the U.S. dollar and U.S. interest rates. The recent action in the currency and debt markets could mean copper is heading back above the $4 per pound level in 2024. The CPER ETF moves higher and lower with copper prices, and Freeport McMoRan (FCX) is one of the world’s leading copper-producing companies that stands to benefit from higher prices.
The Fed pushes copper prices higher
The November consumer and producer price index data led to another pause from the FOMC that left the short-term Fed Funds Rate unchanged at 5.375% in early December. Moreover, the Fed went one step further, telling the market it forecasts rate cuts for 2024. Copper prices rallied after the Fed’s pivot from a hawkish to a more stable to dovish monetary policy approach.
The chart highlights the rally that took March COMEX copper prices to over $3.90 per pound on December 15 and 19 before correcting back to settle at the $3.8980 level on December 19.
An update on LME and COMEX inventories
On November 14, LME and copper stockpiles stood at 179,325 and 20,402 metric tons, respectively.
On December 18, the stocks had slightly declined to 172,450 and 16,701 tons.
Meanwhile, addressing climate change by achieving NetZero carbon emissions by 2050 will require mining 1.5 billion tons of copper over the next 26 years. Only 700 million tons of copper have been mined in all of history. Robert Friedland, Ivanhoe Mines Ltd founder and executive co-chairman, recently said that copper prices must hit the $15,000 per ton level to simulate the industry into building costly new mines. LME three-month copper forwards were at the $8,482.50per ton level on December 18.
China is a critical factor
One of the reasons for copper’s decline from the March 2022 $5.01 record high to below $4 is the economic weakness in China, the world’s leading copper consumer. While the Chinese economy remains under pressure in late 2023, the odds of an eventual rebound in the world’s most populous country with the second-leading economy are high.
China is the critical factor for copper prices while addressing climate change by supporting alternative and renewable fuels and inhibiting fossil fuel production and consumption, which supports copper. Copper is essential to electric vehicles, wind turbines, and other green energy initiatives.
While copper dropped from the $5.01 March 2022 high to the $3.8980 per pound level, the price continues to reflect the increased worldwide demand and limited supplies at the current price point.
The chart dating back to the early 1970s shows copper’s long-term bullish trend of higher lows and higher highs. Moreover, before 2005, copper’s all-time peak was below the $1.65 per pound level.
CPER is the copper ETF
The most direct route for a copper investment is the LME forwards or COMEX futures. The U.S. Copper ETF product (CPER) trades on the NYSE Arca and provides an alternative for market participants seeking copper exposure. CPER has nearly $130 million in assets under management and trades an average of 82,565 shares daily. CPER charges a 0.88% management fee.
Nearby March copper prices rallied 10.6% from $3.5575 on October 23, 2023, to $3.9330 on December 1, reaching the most recent peak before the Fed meeting.
Over the same period, CPER moved 10.4% higher from $22.02 to $24.30 per share as the ETF did an excellent job tracking copper’s rally.
One of the drawbacks of the ETF is that it is only available during U.S. stock market hours, while copper futures trade around the clock. Therefore, CPER can miss highs or lows when the stock market is not operating.
FCX is a leading copper producer
Another option for copper investors is one of the leading copper-producing companies, Freeport McMoRan (FCX).
The chart shows that FCX was a leading copper mining company in 2022, second only to Codelco, the world’s top producer.
At $42.18 per share on December 19, FCX had a nearly $59.3 billion market cap and trades an average of 13.4 million shares daily. FCX pays shareholders a $0.60 dividend, translating to a 1.42% yield.
The chart shows FCX shares appreciated 19.3% from $33.08 on October 23 to $39.46 on December 1. Mining shares often outperform the underlying commodity on the upside and underperform on the downside, providing leverage. Meanwhile, in a sign of bullish sentiment in the copper market, while the futures and LME forwards made a lower high than the December 1 peak over the past sessions, FCX rallied to $42.62 per share on December 19. The rally in FCX shares supports higher copper prices as investors are buying FCX in anticipation of rising copper prices in 2024.
While addressing climate change initiatives supports copper, economic conditions in China are critical for the metal’s path of least resistance in 2024. If the Chinese economy makes a comeback, copper prices could soar in the coming year as the demand rises, inventories fall, and mine supply struggles to keep pace with the demand. Moreover, it takes years to bring new mine supplies online, which could cause significant shortages, causing prices to overshoot on the upside. Robert Friedland’s comment that $15,000 per ton is required for new mine supplies translates to a COMEX futures price of around $6.80 per pound.
The odds favor higher copper prices in 2024. Meanwhile, any long risk position requires leaving room to add if the prices fall over the coming weeks. Picking bottoms is always a dangerous venture in the volatile commodity asset class.
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.
