LME Copper - Have All The Bullish Factors Been Priced In Yet?

LME Copper price has broken above its 2023 high, currently testing its June 2022 high. As shown in the weekly chart, the technical configuration indicates LME copper breaking out from its year-long consolidation, leading to a sustained uptrend in recent months. The red metal has continued its upward movement due to a combination of macro factors and geopolitical issues, boosting its already bullish sentiment arising from anticipated tighter supply as Chinese smelters decided on a joint production cut amid a tight concentrate market.

The promising future for copper lies in its key role in the energy transition and digital shift towards artificial intelligence, which requires larger data centers. Particularly in China, companies are heavily investing in electric vehicle (EV) production. As the world shifts towards clean energy, copper is poised to be a key beneficiary. Additionally, new rounds of  sanctions imposed on Russian metals (Copper, Aluminium, Nickel) have further boosted the attractiveness of copper, despite no immediate supply shock being foreseen.

However, unlike its anticipated future, the current spot market presents a different picture, with a slower-than-expected recovery in spot consumption. In China, spot transactions were thin with ample supply, as manufacturers purchased only on rigid demand amid elevated prices.

Nonetheless, the market tends to focus on the future. Therefore, the potential implications of sanctions, coupled with anticipated supply constraints due to a joint output cut by Chinese smelters, and expected uplift in future demand have attracted investment fund flows into the LME base complex, pushing up prices of affected metals.

In summary, ongoing bullish factors supporting copper prices suggest that the red metal, LME Cu, could potentially break above its June, 2022 high. A substantial break above resistance would indicate a potential test towards its April 2022 high. However, if demand continues to perform lackluster in the coming months or if the Fed decides not to cut rates too early, it could eventually weigh on copper prices, capping the upside potential.

Do note that the information provided is solely our opinion and for informational and discussion purposes only. It does not constitute trading advice or advocacy. Readers are encouraged to conduct their own research and consult with financial professionals before making any investment decisions.

Publication Date: 18 April 2024

By: TR&A