Copper: Recent Mine Disruptions, Weak US Dollar Reassert Long-Term Bullish Outlook

Copper prices have been on the rise in the last couple of months and have made a good start to October, following a big tumble at the end of July when Trump surprisingly excluded raw copper materials, such as copper ore or refined copper, from the tariffs.

Ahead of that decision, US copper imports and prices had surged above global benchmarks, causing inventories to swell to a 21-year high. But the big price drop and continued disruptions in the supply of copper in some of the world’s biggest copper mines meant that traders have been slowing down in scooping up copper in the last several weeks. Meanwhile, London copper futures have neared a record high that was set in May last year of $10,915/tonne.

Supply Concerns Keep Prices Supported

As well as the long-term drive towards electrification and greener energy, copper is also a supply-driven market – much like crude oil. Whenever there are production outages, you tend to see prices spike sharply. This has actually been a major source of support for copper prices in recent weeks.

Disruptions at Indonesia’s Grasberg, the second-biggest mine globally, saw Freeport-McMoRan Inc. declare force majeure at the operation last month. This was triggered after mud flooded the underground tunnels. The latest news from the company released yesterday was that investigations are still ongoing, and all the remaining 5 people who were missing have been found deceased, unfortunately. The company has slashed production guidance after the major incident.

Can Copper Take Lead From Other Metals?

Of course, it is not just copper that has been rising lately. Other base and precious metals have also rallied, including aluminium and platinum. Shining even more brightly, however, have been precious metals, with gold hitting new highs today and approaching the $4K level, and silver closing in on its 2011 high near $50. Gold’s breakout above yet another round handle is simply fuelling the bullish momentum, given the lack of any major selling activity.

It looks like gold could now test the next big level of $4,000, with $3,900 broken. The strength of gold and other metals so far this year is not simply the product of speculation; it is driven by several overlapping trends that have proved resilient throughout the year. Many of these factors may well remain relevant in the latter stages of this year, keeping the outlook positive for gold, silver, and copper.

There is little doubt that copper’s more recent gains have been accelerated because of a weaker US dollar. The greenback has endured one of its poorest years since the early 2000s, with the more recent losses coming in because of the government shutdown.

Obviously, today the euro is lower on the back of the shock resignation of the French Prime Minister, and the USD/JPY has taken a drop on the back of the Japanese election, both of which have provided a respite for the US dollar. But I don’t see the greenback bouncing back materially without the shutdown ending or data showing significant improvement.

Copper Technical Analysis

The recent buying in copper has caused the 21-day exponential average to move back above the 200-day simple average, providing us with a clear, objective signal that the upward trend has resumed. Thus, dip-buying will remain my preferred strategy in copper. Key support now comes in at the now reclaimed $5.000 level.

As well as a prior support and resistance level, this is a major psychological hurdle. While above it, the path of least resistance will remain to the upside. The main objective above here is around $5.425, marking the last support prior to the big breakdown on that tariff-related announcement on July 30.

Above this level, $5.555 is the next potential resistance before this year’s high of $5.9585, and the next big psychological level of $6.000 comes into focus.

Long-Term Bullish Macro Backdrop

I remain bullish on copper in the long term, as global electrification gathers pace. This is the process of replacing fossil fuel-powered infrastructure, appliances, and vehicles with electrically powered alternatives. Above all, the most visible example is the drive towards electric vehicles, especially in the Western world, but also in China and other major economic regions.

Switching from internal combustion engines to electric power means there will be lots of demand for copper as global leaders aim to reduce greenhouse gas emissions and increase energy efficiency. As well as transportation, copper is also used in electrical wiring, plumbing, and construction, among many other uses.

****
InvestingPro provides a comprehensive suite of tools designed to help investors make informed decisions in any market environment. These include:

• AI-managed stock market strategies re-evaluated monthly.
• 10 years of historical financial data for thousands of global stocks.
• A database of investor, billionaire, and hedge fund positions.
• And many other tools that help tens of thousands of investors outperform the market every day!

Not a Pro member yet? Check out our plans here.

Disclaimer: This article is written for informational purposes only; it does not constitute a solicitation, offer, advice, counsel or recommendation to invest as such it is not intended to incentivize the purchase of assets in any way. I would like to remind you that any type of asset, is evaluated from multiple perspectives and is highly risky and therefore, any investment decision and the associated risk remains with the investor.

Read my articles at City Index