Copper prices have been holding their elevated levels, but they have struggled to make fresh gains. ING explains some of the factors impacting copper right now. The full article can be accessed here.
- Inflation pressure has been helping commodities generally and copper has benefitted from those tailwinds.
- Low inventories have supported prices and discouraged traders from building shorts.
- China’s pro-growth policy should in principle help copper prices. The Chinese government wants to support infrastructure projects and ease financial conditions. If you look at China’s 50 index below you can see that copper prices tend to move in line with stocks. So, if China’s economy is stimulated that should help both copper and China’s stock markets.
Copper has strong February seasonals
From Feb 01 to Feb 24 Copper has gained 11 times in the last 15 years. The average return has been an impressive 4.20%. Last year saw gains of over 20%! The start of Feb saw a great run higher in copper, but USD strength on risk-off trading due to the Russia/Ukraine crisis limited gains.
Asset managers reduce longs
According to COMEX data, the net long position has reduced. However, ING notes that this is longs reducing their positions rather than shorts adding.
South America has the world’s largest copper mines. Chile is the world’s largest producer and Peru is the second largest. Chile’s mine production fell by 1.9% this year to around 5.62 million tonnes in 2021. This was largely a result of a 14.8% fall from Escondida. Peru’s production increased by 7% in 2021 to 2.3 million tonnes in 2021, so that offsets some of Chile’s falls.
Going forward 2022 is expected to be a good year for copper mines supply with new projects coming online.
So, copper prices may be best played from the edge of the recent ranges with reasons for both buyers and sellers to step in. One area to watch will be how China’s stimulatory policy influences prices. For now, buying on the edge of the bottom of recent ranges seems sensible with risk carefully managed and defined.