Looks like the stars aligned for a change. The dollar eased back; the latest salvo in trade issues was not as bad as expected; Spot prices held the $2.60 level thereby creating a short-term base; inventories fell further; and equity markets here rose to new record highs. All in all, it was quite a week, with copper on Comex climbing nearly 21 cents, to include an 11.5-cent gain on Friday, bringing the market to a two-month high, and generating a buy signal on our copper dashboard.
Given the sudden jump, though, we are inclined to view this as a “short covering rally” more than anything else right now. Further, the war of words and protectionist tariffs that laid metals low could flare up again at any time. On the other side of the equation, however, the fundamentals for copper remain quite good.
To this point, our friends at The International Copper Study Group report that global production of refined copper rose 210,000 metric tonnes (MT) or 1.8% through the first half of 2018 to 11.711 million metric tonnes. Consumption climbed 113,000 MT, or 1% to 11,762 million metric tonnes, resulting in a shortfall of 51,000 metric tonnes thus far this year.
Also, we continue harping on declining inventories held in exchange warehouses, as another 38,200 MT was withdrawn last week, and bringing the total down to 488,545 MT, which by our calculations represents just 1.05 weeks of global consumption, down from nearly two weeks at the end of the first quarter.
So, if by chance trade tensions ease and gravitate toward a more acceptable middle ground, and/or if the dollar weakens further, we could well see copper reaching for higher ground.
John Gross is publisher of The Copper Journal. If you would like to learn more about profitably managing your wire and cable inventory, hedging strategies or gaining additional insight into metals pricing, email John by clicking here or calling him at 631-824-6486.