Cop­per Re­acts to Tar­iffs and In­ven­to­ries

Zambian Business Times - - COMMODITIES - Source: Bar­chart

The cur­rent level of tech­ni­cal re­sis­tance in the COMEX cop­per fu­tures mar­ket stands at $3.4445, the late 2013 peak in the red metal. Rea­son three - In­ven­to­ries weigh on the in­dus­trial metal

The level of in­ven­to­ries can have a sig­nif­i­cant im­pact on the price of cop­per. The London Met­als Ex­change is the world’s most liq­uid plat­form for trad­ing cop­per. The ex­change of­fers a 90-day for­ward prod­uct that at­tracts pro­duc­ers and con­sumers who can hedge or lock in prices for each busi­ness day of the year. The COMEX mar­ket and other fu­tures ex­changes do not of­fer as much flex­i­bil­ity for the in­dus­trial users of hedg­ing prod­ucts.

In late March, the amount of cop­per in LME ware­houses ex­ploded to the up­side.

Cop­per in LME ware­houses around the world moved from 317,750 tons on March 26 to a high of 388,175 tons on March 29.

As the 5-year chart of LME stock­piles shows, the in­ven­tory level moved to the high­est level since 2014 which likely weighed on the price of the red metal over re­cent weeks.

At the end of Q1, to­tal cop­per stocks on the LME stood at the 383,075-ton level which is close to the re­cent high.

Tech­ni­cal sup­port for COMEX cop­per fu­tures is at the $2.8750 level with re­sis­tance at $3.3220. The mid­point of the trad­ing range since last Septem­ber is at the $3.0985 per pound level, and cop­per was trad­ing be­low that level on April 2, the first day of trad­ing in Q2 2018. South­ern Cop­per (NYSE:SCCO) is the world’s fifth-largest cop­per pro­duc­ing com­pany, and the price of its stock tends to move with the price of the red metal. SCCO is al­most a pure play on cop­per. Codelco, the world’s lead­ing pro­ducer, is a state-owned com­pany in Chile. Freeport-McMoRan (NYSE: FCX) is the sec­ond lead­ing pro­ducer, but the stock of the com­pany re­flects the other com­modi­ties they pro­duce. Glen­core (OTCPK:GLNCY) and BHP Bil­li­ton (NYSE: BHP) are both di­ver­si­fied com­modi­ties pro­duc­ing com­pa­nies. There­fore, SCCO could be the best proxy for the red metal when it comes to price ac­tion in the cop­per mar­ket. The price to earn­ings mul­ti­ple for SCCO is high at 57.62 times earn­ings, but the com­pany pays a 2.21% div­i­dend. Cop­per is en­ter­ing its fourth month of price con­sol­i­da­tion as we head into the sec­ond quar­ter of 2018. The red metal has not vi­o­lated its tech­ni­cal sup­port. If trade ten­sions ease, we could see a chal­lenge of the late De­cem­ber peak and a new high for the cop­per mar­ket which would be a con­tin­u­a­tion of the price pat­tern that took hold of the in­dus­trial com­modi­ties sec­tor more than two years ago.

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