Copper is an industrial commodity that leads the base metals that trade on the world’s leading nonferrous forward market, the London Metals Exchange. Aluminum, nickel, lead, zinc, and tin prices tend to follow copper higher or lower. Meanwhile, copper’s role as an input in infrastructure building makes it a barometer for global economic expansion or contraction. China is the world’s leading copper consumer, while Chile has long been the top producer.
Copper’s role in green energy initiatives has caused Goldman Sach’s analysts to call the red metal “the new oil.” Copper is a primary input in electric vehicles, wind turbines, and other initiatives to replace fossil fuels. In a May 20 Barchart article, I highlighted copper’s “Pretty fundamentals and ugly technicals.” I concluded the article with the following:
Copper faces bullish fundamentals and bearish short and medium-term technical price action. The price could continue to decline towards the $3.15 level on futures and below $7,000 on the LME forwards, but supply and demand dynamics suggest that another higher low is on the horizon. Buying copper at the current price level requires leaving room to add on further declines. Pretty fundamentals and ugly technicals can create lots of volatility that can shake the confidence of even the most committed bull.
COMEX copper futures for July delivery were at the $3.7320 per pound level on May 19, with the three-month LME forwards at $8,251.50 per ton. Prices have moved lower over the recent trading sessions.
Robert Friedland is a mining legend
Robert Friedland is an American/Canadian mining mogul. The billionaire specializes in securing funding for exploration and developing mineral and energy resources and technology ventures. He was Steve Jobs’ close friend and confident. Friedland was the caretaker for his wealthy uncle’s apple farm as a young man, and Steve Jobs’s weekend visits to help with the apple orchard was the inspiration for naming his company Apple.
Friedland made billions in gold and metals mining ventures. He is the executive co-chairman of Ivanhoe Mines (IVPAF), a copper and precious metals exploration and mining company. Robert Friedland has been a mining leader and legendary figure for decades.
Friedland says the current price weakness is temporary
Robert Friedland recently commented in on the copper market and its price decline, saying, “It’s temporary. We’re very bullish on demand.” Mr. Friedland cited copper requirements for decarbonization that continue to increase the demand with tight supplies as insufficient mines are being built to satisfy future needs.
The long-term trend in London Metal Exchange inventories validates copper’s tight supply-demand fundamentals.
Source: LME/Kitco
The chart shows the decline from nearly 340,000 metric tons in LME warehouses in mid-2019 to below 100,000 tons in late May 2023. Declining stocks, increasing demand from green energy initiatives, and limited new mines coming online are fundamentally bullish for the copper market.
Copper needs to remain above the $3.15 per pound level- There is downside risk at the current price
Fundamentals may be bullish, but the technical price action since March 2022 remains bearish in mid-2023.
The chart illustrates the drop from $5.01 in March 2022 to $3.15 per pound four months later in July 2022. At the $3.70 level on June 1, copper futures remain a lot closer to the July 2022 low than the March 2022 high.
The long-term chart dating back to 1970 shows the bullish copper trend for over two decades remains intact, and only a drop below the $3.15 technical support level would change copper’s path. Copper did not trade above $2 per pound until late 2005 and above $3 until 2006. The red nonferrous metal has not been below $3 since 2020 and under $2 since 2016.
At the $3.66 level on June 1, copper has some downside risk, but the risk-reward dynamics of the long-term trend and supply and demand fundamentals continue to favor the upside.
The most direct route for a risk position in copper is via the COMEX futures or LME forwards. Copper mining stocks offer exposure to the metal but involve other risks of management, specific mines and countries, and other idiosyncratic issues that can impact share prices. A copper ETN and an ETF track copper’s price for investors and traders who want to avoid the leveraged and margined futures and forward arena.
JJC is a copper ETN
The iPath Series B Copper Subindex ETN product (JJC) tracks copper prices. At $19 per share on June 1, JJC had $61.664 million in assets under management. JJC trades an average of 26,877 shares daily and charges a 0.45% management fee.
The last rally in COMEX July copper futures took the price from $3.8290 on March 16 to $4.1865 on April 14, a 9.3% gain.
Over around the same period, the JJC ETN rose from $19.45 to $21.32 per share or 9.6%. The ETN did an excellent job tracking copper futures.
CPER is a copper ETF
The U.S. Copper ETF product (CPER) provides market participants another option. At $22.87 per share on June 1, CPER had $131.194 million in assets under management. CPER trades an average of 52,247 shares daily and charges a 0.88% management fee. While the expense ratio is higher than JJC’s, CPER offers slightly more liquidity as its assets and volume are higher.
Over the period when July copper futures rose 9.3% and JJC moved 9.6% higher, CPER rose from $23.29 to $25.60 per share or 9.9%.
The only drawback for JJC and CPER is they only trade when the U.S. stock market is operating, and copper futures and forwards trade around the clock. The ETN or ETF products can miss highs for lows occurring when the stock market is closed.
Time will tell if Robert Friedland’s call on copper is correct. The mining legend has a vested interest in higher copper prices, so he is talking his book. However, climate change initiatives and supply and demand fundamentals point to higher copper prices, making the current price level attractive.
On the date of publication, Andrew Hecht did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
