Quarterly Outlook
Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges
Althea Spinozzi
Head of Fixed Income Strategy
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Copper soars to record high, platinum breaks out
Ole Hansen
Head of Commodity Strategy
Key points
- Saxo's "Year of the metals" theme continues to gather momentum
- Copper's momentum, and short-covering fueled rally drives it to a fresh record
- Platinum breaks higher, supported by a tightening supply outlook
Saxo’s “Year of the metals” theme, highlighted in our Q1 outlook continues to gather momentum with our preferred metals: gold, silver, copper, and now also platinum showing strong gains. However, while gold continues to consolidate following the March to April run up in prices, copper has following a brief pause at the beginning of the month been racing higher to record a year-to-date gain of more than 30% and in the process reaching fresh record highs.
From a fundamental perspective copper is being supported by expected robust demand in the coming years from among others towards electric vehicles, grid infrastructure and AI data centres at a time where production from existing miners may struggle to meet to expected demand, potentially driving large supply deficits in the coming years. Apart from continued momentum, strengthened by the latest breakout, prices are also being supported by short covering. During a two week period to 7 May, speculators looking for a short-term peak added 12.6k lots (143k tonnes) of shorts in high grade futures, the closing of these now supports the upside extension with the New York copper prices leading the rally.
Platinum meanwhile has broken its year-long range above USD 1015, as investors respond to an improved technical outlook and the prospect of a rising supply deficit this year and the next. In their quarterly outlook, released on Monday, the World Platinum Investment Council (WPIC) wrote “In the first quarter of 2024, the platinum market recorded a deficit of 369 koz, while for the full year a 476 koz deficit is forecast, which follows an 851 koz deficit in 2023”. Platinum has for a while been struggling amid the mentioned rangebound behaviour, resulting in the net position held by money managers gyration around neutral, potentially now adding some additional upward momentum from speculators adding exposure.
As mentioned, the aggressive nature of the latest extension to a record high in copper highlights a market where traders have been caught short, especially in the New York based High Grade futures contract, and while it may drive prices higher in the short term, the risk of prices overshooting current fundamentals also rise. While the Chinese market has received a boost from the prospect for additional government support, the near term fundamentals does not stack up with the current exuberance.
Copper stocks monitored by the Shanghai Futures Exchange have recently surged to 300,000 tonnes, a level last seen four years ago when demand collapsed during Covid. In addition, the premium importers are prepared to pay over LME copper has vanished, again an indication the rally has been driven by exchanges in London and New York, and not China, the world’s top consumer of copper. The slump in the spread of this magnitude has not been seen since the Great Financial Crisis in 2008.
Overall, the direction of copper is up, but following the latest surge to a record high - the timing of which occurred somewhat sooner than expected - a period of consolidation looks increasingly likely. Given how far copper has travelled in a relatively short period of time, the contract can retrace all the way back to USD 4.56 or even USD 4.40 per pound without disturbing the bullish setup.
High Grade futures, first month (New York)
Platinum, in a down trend for the past three years, finally broke higher on Tuesday, a move that gained momentum after the spot contract (XPTUSD) broke resistance-now-support at USD 1015 per ounce. The breakout saw the gold-platinum ratio slump to 2.26 from a recent 2.58 high, but still above the one-year average around 2.16. Following a potential consolidation period, the next major level of resistance is not before the 2023 highs around USD 1,130 per ounce.
Spot Platinum, weekly chart
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