The analysts at Scotiabank made a nice argument that copper is set up for a near-term rally and backed up their argument with a collection of charts. I am absolutely bullish on copper in the medium term, as I am confident a supply deficit looms unless the entire world goes into a significant recession.
But I thought I’d go through Scotia’s argument about the near term, as food for thought.
Setting the stage: worries about global trade wars and slowing growth in China have punished the price of copper, which is now down 19% since mid-summer.
Copper is the second-worst performing metal in 2018 year to date; only zinc has fallen further, but it did so after making immense gains in the previous 18 months.
Another good way to test the waters of copper demand is to see how much of a premium over the spot price traders are paying to get their hands on high quality copper cathode today. In Shanghai, those copper cathode premiums have risen substantially over the last two months, from US$68 per tonne in July to US$90 per tonne today.
To me, copper is a market where today’s macro anxieties have overwhelmed tomorrow’s strong fundamentals. That will not last long because copper is such an active market.
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