Copper is the commodity that tends to lead the other nonferrous metals trading on the world’s top base metals exchange, the London Metals Exchange. Copper forwards trade on the LME, while the CME’s COMEX division lists futures on copper.
My October 13 Barchart article explaining why rising interest rates and a weak Chinese economy pushed copper prices lower concluded:
Copper is under pressure because rates have soared, and the dollar index moved higher. However, supply and demand fundamentals suggest that the red metal will find a bottom sooner rather than later.
Nearby December COMEX copper futures were at the $3.5650 per pound level on October 13. In mid-November, the red metal’s price was higher.
Copper rallies but has not broken the bearish trend
Copper’s rally to $5.01 per pound in March 2022 ran out of upside steam. The red metal plunged 37.1% to a $3.15 per pound low five months later in July 2022. After a rally that took copper above $4.30 in early 2023, the price has made lower highs and lower lows.
The chart highlights copper’s decline from the $4.3145 per pound January 2023 high to $3.53 in. late October. Over the past weeks, the price has rallied to around the $3.71 level but remains in a bearish trend. Breaking the bearish path of least resistance requires a move above the $4 per pound level. December copper futures at the $3.7105 level were 4.1% above the October 13 price. Attempts at rallies continued to fail in mid-November 2023.
LME copper stocks rose- COMEX inventories declined
Copper inventories on the London Metals Exchange had made lower highs over the past five years, falling from the 340,000-ton level in 2019 to under 60,000 tons in July 2023. However, the rise to 179,325 tons on November 14 reflects copper’s fundamental bearish price action.
Source: LME/Kitco
Meanwhile, COMEX copper warehouse stocks have declined over the past two months.
Source: COMEX/Kitco
COMEX stocks declined from the 26,000-ton level to 20,402 tons over the past sixty days. However, the over 100,000 metric ton increase in LME stocks has been far more significant for the copper market than the COMEX inventory decline.
China is critical for copper- Copper is a proxy for the Chinese economy
Economic weakness in China, the world’s leading copper consumer, has contributed to the overall increase in global inventories.
While copper’s nickname “Doctor Copper” refers to its position as an indicator of global economic growth or contraction, China’s dominant position in the copper market means the red metal is a proxy for the world’s second-leading economy’s condition. Copper’s bearish trend is a function of Chinese economic weakness over the past months.
Chinese President Xi will meet with U.S. President Biden this week. If the bifurcation of the world’s nuclear power and the “no-limits” alliance with Russia are causing China’s economic travails, any reproachment that improves relations between Beijing and Washington could improve conditions. The U.S. is the leading economy, and China and the U.S. share a mutual economic dependence in many ways. Therefore, any positive news from the upcoming meeting could cause upward pressure on copper’s price.
Levels to watch in COMEX futures
Critical technical support and resistance levels on the continuous COMEX copper chart are at the $3.15 and $5.01 per pound levels.
From a shorter-term perspective, the chart shows technical support on the December COMEX futures contract at $3.5195, the October 23 low. The first resistance level is at the September 29, $3.7860 per pound high.
Copper tends to trend, so breaking these technical levels could lead to a significant price move.
A bullish bias- Leave room to add on price weakness
In my October 13 article, I mentioned, “The green energy initiatives increase the demand for copper as electric vehicles and wind turbines require increasing amounts of the red metal.” At the same time, “Inflation and rising interest rates are pushing production costs higher. Financing for new production has become extremely expensive, putting upward pressure on prices.”
As the world’s leading copper producers develop new reserves, some of the most promising mines are in the Democratic Republic of Congo. The DRC is not a politically stable country, which could add to supply concerns over the coming years when demand returns to the copper market and the fundamentals improve.
I am a buyer of copper at the current price level, leaving plenty of room to add on further declines. I will take my time accumulating and adding to long positions in copper futures, ETFs like CPER, and copper mining stocks, including FCX, GLNCY, BHP, and RIO.
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.
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.
