From a price action perspective, copper continues to perform well. Having fallen sharply in late July (on tariff-related news*), the US price has stabilised within its long term uptrend. In recent weeks, it’s begun to retrace those losses, and is currently sitting just below its 200 day moving average. As such, and despite the sharp fall this summer, the long term pattern remains intact: Copper has continued to make ‘higher highs’ and ‘higher lows’ in the past three years (FIG 1).
From a macro perspective, there’s a robust case for further upside. In particular, a cyclical recovery in China’s economy is brewing. That is, policy easing is ongoing, with more loosening likely in coming quarters. That should increasingly generate a turn in China’s credit and housing cycles, and start to revive animal spirits and broader economic momentum (see forthcoming Longview China macro publication). Added to which, significant Fed policy loosening should ‘restart’ this week (Wednesday) and build over coming quarters. With both US and Chinese policymakers easing, the case for a cyclical reacceleration in the US/global economy is growing, and creates a bullish macro backdrop for the copper price. Of note, in that respect, our ‘multi-factor’ copper model is trending up. This indicator is shown in FIG 3 and is designed to give a steer on the underlying copper price trend (by blending a number of key global macro and China-sensitive inputs/asset prices).
FIG 1: Copper futures (first quarterly position), with 50 & 200 day moving averages
*US copper prices rallied earlier this year on expected tariffs, creating a COMEX ‘tariff premium’ and hoarding of copper inventory in US warehouses. In late July, prices then fell sharply after the US clarified that its 50% tariff applied only to semi-finished products (such as copper wire, rod etc.), and not refined copper (cathode). That news triggered an unwinding of excess inventories and arbitrage bets (and a 22% one day fall in the COMEX price, which is now back at ‘normal’ levels relative to LME prices).
Sentiment, positioning, and technical models also point to upside in the copper price. In particular, after July’s SELL-off, our technical (price based) indicators unwound their SELL signals, and are now back on/close to BUY (e.g. see FIG 2 below). In a similar vein, sentiment readings are no longer on SELL and the copper futures curve is in deep contango (see FIG 5, i.e. suggesting that the market is already amply priced for excess supply). In that sense, the consensus expectation is relatively bearish such that copper prices are vulnerable to positive news. Elsewhere net speculative positioning in copper is broadly mid-range (FIG 4).
Overall, the tariff distortion is, therefore, now in the rear-view mirror, policy tailwinds are building, and positioning and technical models are no longer stretched to the upside. Copper is therefore poised for another leg higher.
FIG 2: Copper medium term technical scoring system vs. copper price (USD/lb)
FIG 3: Copper ‘multi-factor’ model vs. LME copper price (USD/ton)
FIG 4: Copper net speculative positioning vs. copper price (USD/lb)
FIG 5: Copper futures curve (1st futures contract LESS 12th, CME), USD/lb
