Copper prices rebound amid speculative noise

Copper is testing the $10,500 mark, after buyers took a breather from last week’s rally that breached all-time highs of $11,000. The red metal has been one of the best performing commodities, with prices up more than 20% year-to-date. Copper’s steady rise has been subject to scrutiny over whether the rally is backed by solid fundamentals such as higher inflows in investment and increased confidence, or an abundance of speculative noise.

Copper’s supply outlook has been a canary in the coal mine for some speculators, who foresee a dearth in supply in the near future. Supply tightening in the US due to the closure of the Cobre Panama copper mine in South America is of particular concern to speculators. This coupled with talk of growing demand in China, as that economy recovers from the lows of the pandemic, have had speculators making ambitious bets. 

Some speculators such as former Goldman Sachs trader and now co-founder of BlueGold Capital, Pierre Andurand foresee a “doubling of demand growth for copper” with the world moving more towards electrification of vehicles, solar panels, wind farms, as well as “military usage and data centres”. 

Signals or noise?

While speculators are hinting at a bullish narrative around copper due to concerns about supply and demand, recent price movements appear to be disconnected from short-term fundamentals. The potential devastating impact of the closure of the Cobre Panama mine appears to be mitigated at-least in the short-term, by reports of “near record” Copper production in China - with the local smelting industry adding capacity. 

China’s demand for the red metal appears to be overstated as well, with demand for the commodity faltering due to high prices. If Chinese demand was increasing at a notable rate, it would have reflected in the country’s import data, with China representing about 40% of global imports. 

Over the past few weeks, the price of copper traded on the US exchange has surged ahead of its counterparts in London and Shanghai. This has happened at a time when the price of Copper has shown a strong correlation with the US bond yields - supporting the case of Copper as a hedge against inflation. This sentiment has been supported by fund managers such as Pictet Asset Management’s co-head of multi-asset strategies Shaniel Ramjee, who sees inflation expectations globally start to increase, “so investors are looking at commodities — especially industrial commodities — as an inflation hedge.”

Technical analysis: Will Copper reclaim $11,000?

The red metal is currently hovering around the $10,500 level with bullish sentiment evident as price stays well above the 100-day EMA, with the 14-day Relative Strength Index (RSI) edging up around the 64 mark. Bulls could encounter resistance around the $10,930 mark with a breach past that area possibly reclaiming the $11,000 all-time high.

On the down-side, sellers could find support around the $10,300 area with further selling likely to test May 14 lows of $10,000. Despite recent fluctuations, copper remains a hot commodity to watch. While fundamentals suggest a less bullish outlook, technical indicators point to the possibility of continued price growth, leaving the future trajectory of copper prices uncertain.

Disclaimer:The information contained within this article is for educational purposes only and is not intended as financial or investment advice. It is considered accurate and correct at the date of publication.

Changes in circumstances after the time of publication may impact the accuracy of the information. The performance figures quoted refer to the past, and past performance is not a guarantee of future performance or a reliable guide to future performance.

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