A Tipping Point for Copper Pricing?

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

Dec. 30, 2019

2 min read

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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.

About the Author

John Gross

President

John Gross is president of J.E. Gross & Co., Inc, the management consulting firm he established in 1987. In addition to his consulting activities, Gross has worked with global leaders in the metals industry over the past thirty-five years. He began his career in metals in 1973 when he joined U.S. Metals Refining Company, a division of Amax Inc., where he rose to become manager of administration. In 1981 he joined Hudson Bay Mining and Smelting as manager of trading and in 1983 became a futures broker with Johnson Matthey, specializing in metals on Comex and the London Metal Exchange.

He joined BICC Cables Corp. in 1985, now owned by General Cable, where he became V.P. of strategic metals for their North American operations. He was also director of metals management with Scott Brass, a producer and manufacturer of copper and brass strip products.

Gross is a graduate of Hofstra University, and is a highly decorated Vietnam Veteran. He has held memberships in several trade organizations; was a director of the American Copper Council, and served as a member of the Comex Advisory Committee. He is very active in industry affairs, and has written extensively on the metal markets, industry issues.