Copper prices have rallied sharply in recent weeks (up 12.4% this month and 27.5% YTD). As such, copper futures are trading at/around their highs from early 2024 (see FIG 1 below).
In part that reflects the improving outlook for China’s economy. That is, the macro data has surprised to the upside in March, with better than expected industrial production, retail sales, and investment spending (amongst other positive surprises). The Citi ‘economic surprise’ index has therefore ticked higher.
In other words, there’s evidence that the ‘sugar rush’ of policy loosening is beginning to have an impact. Despite ongoing structural challenges, therefore, policymakers seem to be jawboning growth higher, at least temporarily. That’s bringing a bid back to copper prices, which have largely traded sideways since the middle of 2021. The key question, therefore, is: How much more upside is there? Has all the good news on China been priced in? Or will copper continue to trend higher?
In the near term, the rally is over-extended. Our technical scoring system for copper, for example, is now close to strong SELL (see FIG 2), while measured sentiment readings are reasonably bullish (a contrarian SELL signal). Having said that, and as we show in FIG 3 below, net long positioning is still relatively low. On that measure, therefore, ‘LONG Copper’ is not a crowded trade (as of yet).
Fig 1: Copper futures (first quarterly position, US$/lb)
Fig 2: Copper medium term technical scoring system vs. copper price (USD/lb)
Fig 3: Copper net speculative positioning vs. copper price (USD/lb)
