In my Q1 2023 report on base metals on Barchart, I highlighted the over 7% rise in COMEX copper futures and LME copper forwards over the first three months of 2023. I ended the report by writing:
I am bullish on the base metals sector and view selloffs as buying opportunities for the future. However, picking bottoms is always challenging in the volatile commodities asset class. I will leave plenty of room to add on a scale-down basis on further declines.
On May 1, copper prices were lower than at the end of March 2023, closing levels of $4.0945 on the COMEX futures and $8,993 per ton on the three-month London Metals Exchange forwards. I view the correction as a buying opportunity but will leave plenty of room to add to long positions at lower prices.
Copper corrects
Copper prices have moved lower since the end of Q1 2023.
The chart highlights the 4.4% decline from March 31, with nearby May COMEX copper futures falling from $4.0945 to $3.9235 on May 1.
Three-month LME copper forwards declined 4.4% from $8,993 on March 31 to $8,595.50 per ton on April 28.
Copper’s price fell because of global recession fears. While the bond market was steady from the end of March through the end of April and the dollar index declined, which is not bearish for copper and other commodities, the red metal corrected to below $3.90 per pound on April’s final trading session.
The green initiatives are compelling reasons to accumulate copper
Goldman Sachs is not alone in calling copper the new oil because decarbonization only occurs with the base metal, a critical input in electric vehicles, wind turbines, and other green energy initiatives.
Meanwhile, as the Chinese economy returns to pre-pandemic levels and China flexes its military and economic muscles, the world’s leading copper consumers will likely increase their buying.
Source: Statista
The chart shows that China consumes over half the world’s annual refined copper supplies.
The demand growth from green initiatives and Chinese requirements are compelling reasons to accumulate copper scale-down during the current correction.
Copper inventories are trending lower
The long-term chart of copper inventories on the London Metals Exchange illustrates a tightening supply situation.
Source: LME
Over the past five years, copper stockpiles in the global network of LME warehouses have made lower highs and lower lows. After peaking at nearly 340,000 metric tons during the second half of 2019, stocks stood at 64,550 tons on April 28, an over 80% decline.
Source: CME
The chart shows COMEX warehouse stocks were nearly 80,000 metric tons in January 2021. As of April 27, they were over 60% lower at 27,647 tons. Falling stockpiles are a sign of market tightness.
Levels to watch in futures and forwards
Copper futures and forwards are moving close to technical support levels.
The ten-year chart illustrates the continuous COMEX copper futures chart at just over the $3.70 level with resistance at $4.3145, the early 2023 high. The upside target remains the March 2022 $5.01 per pound record peak.
Support for the three-month LME copper prices is around the $8,200 level, with resistance at the January 2023 $9,550.50 high. The upside target on the LME forwards is at the March 2022 $10,845 all-time high.
Goldman Sachs had forecast copper would reach $15,000 per ton by 2025, putting the COMEX futures above the $6.80 per pound level.
CPER and JJC follow copper prices
The most direct route for investing in copper on the long side is via the futures and forwards on the CME’s COMEX division and the London Metals Exchange. Those looking for copper exposure without venturing into the futures or forward arena can choose between an ETF and ETN product:
- At $24.13 per share on May 1, the U.S. Copper ETF product (CPER) had over $139.4 million in assets under management. CPER trades an average of 73,870 shares daily and charges an 0.88% management fee.
- At $20.10 per share on May 1, the iPath Series B Copper Subindex TR ETN product (JJC) had $65.502 million in assets under management. JJC trades an average of 27,324 shares daily and charges a 0.45% management fee.
CPER and JJC do an excellent job tracking copper prices. Shares in copper-producing companies, including Freeport McMoRan (FCX), Southern Copper (SCCO), BHP Billiton (BHP), Rio Tinto (RIO), Glencore (GLNCY), and others, also move higher and lower with copper prices. While some of these companies have exposure to other metals and commodities, copper tends to lead the base metals sector, causing a high correlation with copper’s price.
Copper’s short-term trend remains lower in early May, but the fundamentals suggest the red metal will find a bottom sooner rather than later. I favor accumulating copper on a scale-down basis during the current price weakness.
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.
