Copper, the only metal with a PHD; What Hypothesis could it be explaining this time?

Copper price screen from CNBC Africa
  • Copper is the only Metal with a PHD – Doctorate- because it has for a long time been used as a global economic barometer;
  • Copper has signalled Chinese and US economic growth prospects for a long time;
  • Copper price elastic to US and China economic pronouncements;
  • Copper bubble may not be around for long;
  • Copper could be signaling higher commodity prices in the medium term;
  • Copper dissertation could be around electric cars, Trumps uncertain policies and supply plug ins;

Copper is said to the only metal with a PHD – Doctorate- because it has a for a while been a barometer for economic growth of the top (2) economies of the world; China and the United States. It is a strategic industrial commodity that use in bullet and cabling manufacture supporting a wide spectrum of usage. The electric car era, power transmission, brass manufacture and earth rod lightening protection require copper. The red metal has experienced an exponential price rally (rise) to levels unseen in 2 years. Copper is on the London Metal Exchange – LME trading for $6,352 per metric ton and $2.88/Ibs on the Commodities Exchange – Comex. The metal is 9.71% stronger on a monthly, 32.32% stronger annually and 6.51% over the last 10 days.

The last 10 months

  • The phenomenal US election outcome in October 2016 gave the Metal an adrenaline boost when Donald Trumps oracular $1trillion pronouncements on capital expenditure priced into the pricing. The US Presidential elect committed to a spend that would see construction of bridges and airports which investors were sure would require tons of copper. 
  • Chilean Escondida strikes and the force majeure in march this year created a supply deficit of 120,000 metric ton in the 47 days. The mine contributes 5% of the worlds copper. The majority owned BHP Rio Tinto Mine gave support to the copper price in this period.
  • Every time weak data came out of the US and Janet Yellen procrastinated an interest rate hike, the dollar would weaken and investors would in turn seek safe haven assets such as commodities to include copper. This saw a copper, oil and gold rally to highs.
  • Investors grew weary of waiting for Trumps spend which led to the copper price bubble reversing as the metal weakened to below $6,000 metric tons. Let alone the Chile mine strikes ended and global supply was back to normal. All the noise in the price copper cleared as the red metal settled at about $5,650 per metric ton level.
  • With weak data out of US continuing coupled with uncertainty in Donald Trumps policies the dollar index has been at its weakest (2.67%). This has forced the US Federal Reserve to delay interest rate hikes which has made the average investor seek refuge in safe haven assets – commodities. Copper and other commodities such as crude and gold are trading for highs signaling a weak dollar environment. The last US rate decision was to keep rates unchanged. Oil is trading above $50 per barrel, Gold in the $1,262 an Ounce and Copper over $6,352 per metric ton on the LME.
  • China Non Ferrous Metals Ltd last week hinted that China would be passing regulation to ban importation of scrap metals which would give fresh copper renewed demand. This news sent copper a climbing trajectory which saw the red metal soar above $6,250 per metric ton.
  • Chinese growth data numbers recently released showed a growth in manufacturing activity as evidenced by a 51.4 versus a forecasted 51.6 Purchasing Managers Index – PMI number despite slightly lower than Analysts estimates. This however did not cap the copper rally. A revision of Chinese growth estimates by the International Monetary Fund gave copper support overshadowing the cooling manufacturing activity.
  • The electric car era cannot be ruled out as these new gadgets will need copper wiring.

Hypothesis Copper could be explaining this time

Noise in the price of copper between October 2016 to march 2017 (from $5,650 to $6,050 per metric ton and back to $5,600 levels) is a sign that investors grew weary of waiting for Trumps spend. Investors take positions in anticipation of price moves that will profit them but at what expense? Because Trumps infrastructure speed was coming forth, the weariness caused a sell off in copper positions. However news around future prospects such as the electric car era that will require copper wiring, banning of scrap metal imports into China in 2018, revised bullish growth forecast in the worlds second largest economy and investor preference of commodities as safer haven assets to the US dollar.

Copper has been a constant barometer and indicator for the health state of the global economy. Some schools of thought have used performance of the Chinese Yuan and Chilean Peso; currencies of the two largest copper producing and consuming nations as indicators for what the future has for the the industry. Copper is being used to signal China’s economic engine is heating gaining momentum while that of the US is operating below capacity.

Analysts forecast that the bubble may not be there for long as the largest mines in the world are gearing up for increased production which will soon equalize supply. When this happens the rally will reverse.

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