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A Tipping Point for Copper Pricing?

Dec. 30, 2019
John Gross, EW’s copper expert, sees some positive signs in the copper market for 2020.

It’s too early to tell, but it looks like copper’s stars may be coming into alignment. Here are a few points to ponder:

  • Copper closed at $ 2.8365 on Friday, Dec. 27, marking its fourth consecutive weekly gain, and taking Big Red to an eight-month high.
  • After hitting a low of $2.47 in September, copper has risen 37¢ or 15% since then.
  • The month started with Dec./Mar. at a 1.80¢ contango when the future price is expected to be more expensive than the spot price), which diminished to just five points on the Dec. 13, before going into a backwardation that widened to 1.55¢ on Dec. 26.
  • A backwardation indicates tightness in the market, and that the future price is more expensive than the spot price.
  • Inventories of copper held in Comex, LME and Shanghai warehouses fell to 305,791 metric tonnes (mt)mt last week, a five-year low, and are down nearly 600,000 mt from 900,000 mt in March 2018.
  • The month-to-date average price of Spot copper stands at $2.77, up 12¢ from November. More importantly though, December is the first time this year that the monthly average is higher than the year ago period.
  • According to The International Copper Study Group, the global refined copper market was in a deficit of 393,000 mt during the first nine months of 2019. This is 63,000 mt deeper into the red from 330,000 during the comparable 2018 period.
  • Our index of copper mining share prices has been outperforming the price of copper as the attached chart illustrates.
  • The ICE U.S. Dollar Index fell below a key support line; the Euro is testing overhead resistance, and the 2-Year Treasury and the 10-year Treasury yield spread is widening.
  • Trade issues, we are all told, are moving in the right direction. Most economies around the world are growing slowly; interest rates remain very low by historical standards; and the need for copper will continue to grow.
  • Of course, there is much that can go wrong with this optimistic scenario as we have learned more than a few times over the past eighteen months – but perhaps this time the evidence is leading us in the right direction.