Quarterly Outlook
Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges
Althea Spinozzi
Head of Fixed Income Strategy
Access all our platforms from a single account.
Copper supported by green transformation demand, China stimulus and peak rate speculation
Ole Hansen
Head of Commodity Strategy
Summary: Copper futures in London and New York trade at a 12-week high buoyed by continued China stimulus, US peak rate speculation supporting industry restocking, the renewable energy sector leads consumption higher. Meanwhile on the supply side we are seeing emerging concerns about strike action in Peru and not least the potential loss of 1.5% of global supply related to shutdown warnings at First Quantum’s giant Cobre Panama mine.
Key points in this copper focused industrial metal note
- Copper futures trade at a 12-week high supported by China stimulus and US peak rate speculation
- The energy transition is real as continues to drive demand from EV's, solar and grid upgrades
- A government forced mine closure in Panama may at worst reduce global supply by around 1.5%
Copper futures in London and New York trade at a 12-week high buoyed by continued China stimulus, US peak rate speculation supporting industry restocking, the renewable energy sector leads consumption higher with better-than-expected demand in China from electrical vehicles, solar panels and the power industry. Meanwhile, the supply side is currently facing the risk of strike action in Peru and not least the potential loss of 1.5% of global supply related to shutdown warnings at First Quantum’s giant Cobre Panama mine.
After once again finding support in the $3.54 per pound area last month, the HG futures contract has returned higher to test strong resistance around $3.83, the 200-day moving average, shown as a 42-week moving average below, and the upper falling trendline from the January high. Meanwhile, RSI closed above 60 on Monday, with the positive sentiment pointing to higher prices. Above, the next key area of resistance can be found around $4.02, the August high while a break below $3.67 would return the market to neutral.
Last week the white metal had its best week since July and together with other industrial metals it has been supported by speculation the Federal Reserve’s aggressive rate hike cycle has reached the end of the road. Earlier this year the sector went through a destocking phase amid high interest rates raising the cost of holding inventories while at the same time putting a brake on economic activity.
During the same time however, a better-than-expected demand situation in China helped underpin prices with the latest data provided by Goldman’s showing 10% year-on-year increase so far this year, with green transformation industries continuing to increase demand. A situation highlighted by a drop in China exchange monitored stocks to the lowest level since 2017, in the process offsetting a rise at the London Metal Exchange, which has been dominated by arrivals from Chile and Russia. The copper premium, or the fee traders pay for imported cargoes at the Yangshan port in Shanghai over benchmark prices on the London Metal Exchange, has because of strong demand reached the highest level in a year, according to Shanghai Metals Market.
Looking ahead, the energy transition is real, and it will continue to create a significant amount of demand for some metals, and given the current uncertainty and rising cost of financing there is a risk that sufficient mining capacity will not be developed in time, potentially forcing up prices for in-demand metals with copper, the so-called king of green metals, once again being singled out given the focus on wind, solar, EV’s and subsequent power-grid related demand.
While the short-term outlook for copper continues to be challenged from the risk an economic slowdown, the lack of big mining projects to ensure a steady flow of future supply in the coming years continues to receive attention from long-term focused investors as it supports a structural long-term bullish outlook, driven by rising demand for green transformation metals and mining companies facing rising cash costs driven by higher input prices due to higher diesel and labour costs, lower ore grades, rising regulatory costs and government intervention, as seen by the current crisis in Panama, and not least climate change causing disruptions from flooding to droughts.
Copper remains the best performing industrial metal this year, trading up 3% despite all the worries related to the Chinese property sector, and together with lead it has so far helped limit the year-to-date sector loss to around 11%, partly offsetting heavy losses in nickel and zinc. Speculators, such as hedge funds and CTA’s, have been holding a relatively small net short position in HG copper since August, and with the gross long and short both staying elevated, it highlights the current range bound market which for a while now has not forced any major change in positioning. That status que is likely to be kept until fresh momentum can be established, either below $3.54 or above the 200-day moving average.
We keep a structural long-term bullish view on copper and with that also copper related mining companies that will benefit from higher prices.
Latest Market Insights
Quarterly Outlook
-
-
Quarterly Outlook
Equity Outlook: Will lower rates lift all boats in equities?
Peter Garnry
Chief Investment Strategist
After a period of historically high equity index concentration driven by the 'Magnificent Seven' sto... -
Quarterly Outlook
FX Outlook: USD in limbo amid political and policy jitters
Charu Chanana
Chief Investment Strategist
As we enter the final quarter of 2024, currency markets are set for heightened turbulence due to US ... -
Quarterly Outlook
Commodity Outlook: Gold and silver continue to shine bright
Ole Hansen
Head of Commodity Strategy
-
Quarterly Outlook
Macro Outlook: The US rate cut cycle has begun
Peter Garnry
Chief Investment Strategist
The Fed started the US rate cut cycle in Q3 and in this macro outlook we will explore how the rate c... -
Quarterly Outlook
FX: Risk-on currencies to surge against havens
Charu Chanana
Chief Investment Strategist
Explore the outlook for USD, AUD, NZD, and EM carry trades as risk-on currencies are set to outperfo... -
Quarterly Outlook
Equities: Are we blowing bubbles again
Peter Garnry
Chief Investment Strategist
Explore key trends and opportunities in European equities and electrification theme as market dynami... -
Quarterly Outlook
Macro: Sandcastle economics
Peter Garnry
Chief Investment Strategist
Explore the "two-lane economy," European equities, energy commodities, and the impact of US fiscal p... -
Quarterly Outlook
Bonds: What to do until inflation stabilises
Althea Spinozzi
Head of Fixed Income Strategy
Discover strategies for managing bonds as US and European yields remain rangebound due to uncertain ... -
Quarterly Outlook
Commodities: Energy and grains in focus as metals pause
Ole Hansen
Head of Commodity Strategy
Energy and grains to shine as metals pause. Discover key trends and market drivers for commodities i...