Copper, a key commodity leading the pack in nonferrous metal trading on the renowned London Metals Exchange, plays a pivotal role in both LME forwards and CME’s COMEX futures. As of October 13, nearby December COMEX copper futures stood at $3.5650 per pound, with a subsequent uptick observed in mid-November.
The red metal’s ascent to $5.01 per pound in March 2022 met resistance, witnessing a significant 37.1% decline to a low of $3.15 per pound by July 2022. Despite a rally pushing copper above $4.30 in early 2023, subsequent price movements have consistently recorded lower highs and lower lows.
Examining chart analysis reveals copper’s descent from the January 2023 high of $4.3145 per pound to $3.53 in late October. While recent weeks have seen a modest rally to approximately $3.71, the overall trend remains bearish. A decisive shift requires a breach of the $4 per pound level, with December copper futures at $3.7105, representing a 4.1% increase from October 13. Mid-November attempts at rallies proved futile.
LME Records Rise, COMEX Inventory Declines
Over the past five years, London Metals Exchange copper inventories displayed a downward trend, dropping from 340,000 tons in 2019 to under 60,000 tons in July 2023. However, the surge to 179,325 tons on November 14 indicates a fundamental bearish stance. Conversely, COMEX copper warehouse stocks experienced a decline over the last two months, falling from 26,000 tons to 20,402 tons. The more substantial increase of over 100,000 metric tons in LME stocks carries greater significance than the COMEX inventory drop.
China’s Impact on Copper as an Economic Proxy
Global inventory growth is linked to economic frailty in China, the foremost consumer of copper. Often referred to as “Doctor Copper,” owing to its role as a global economic indicator, the red metal serves as a proxy for China’s economic health. The current bearish trend aligns with recent Chinese economic challenges.
An upcoming meeting between Chinese President Xi and U.S. President Biden could influence Copper’s trajectory. If issues such as nuclear power dynamics and alliances are contributing to China’s economic struggles, diplomatic improvements between Beijing and Washington may positively impact copper prices. Given the interdependence of the U.S. and Chinese economies, positive outcomes from the meeting might elevate copper prices.
Key Levels to Monitor in COMEX Futures
Critical technical support and resistance levels on the continuous COMEX copper chart are identified at $3.15 and $5.01 per pound. A shorter-term perspective reveals technical support on the December COMEX futures contract at $3.5195, the low observed on October 23. The first resistance level stands at the September 29 high of $3.7860 per pound. Considering copper’s tendency to trend, breaking these technical levels could lead to substantial price movements.
Maintaining a Bullish Bias with Strategic Investments
Despite the ongoing bearish trend in mid-November 2023, recent price movements have not dampened the long-term bullish outlook for copper. Notably, as leading copper producers explore new reserves, particularly in the politically unstable Democratic Republic of Congo, potential supply concerns may arise when demand rebounds. The article concludes with the author expressing their inclination to buy copper at the current price level, with plans to accumulate and add to long positions strategically in copper futures, ETFs like CPER, and mining stocks such as FCX, GLNCY, BHP, and RIO.
Featured Image: Freepik