by Raul de Frutos on NOVEMBER 11, 2016
Copper prices jumped 14% in just three days this week.
Such a price surge is something that no one can predict. Fortunately, this doesn’t mean that the move catches you by surprise. Indeed, we recommended to our subscribers that they be ready to buy forward when prices breached $5,050/mt.
We had witnessed enough bullish signals across the metal complex to be prepared for a copper rally. Just days before the price surge, we pointed out that the technical picture for copper had already started to improve, signaling a switch toward a bull market.
In his victory speech, Donald Trump said he would rebuild American infrastructure and double U.S. economic growth. Some might be tempted to think that Trump’s victory propelled copper’s bull run, but the red metal began breaking upwards when markets were still pricing in a Hillary Clinton victory.
To us, what explains copper’s bull market is the increasing investors’ appetite for base metals. Even though copper’s fundamentals have little bullish sentiment, the metal is enjoying a tailwind. It’s like when the internet boom was on, shares of even those internet companies making no profits would rise.
Most likely, investors’ are pouring money into base metals due to strong Chinese demand. Chinese demand from infrastructure and construction has been robust this year and the release of new manufacturing PMI data confirmed strong demand. The Caixin manufacturing PMI for October rose to 51.2, the highest reading since July 2014. That handily beat market expectations.
Also, even though copper markets are still in surplus, investors know that copper is a very slow business in terms of new project development. Consequently, even if prices continue to rise enough to incentive new developments, it will take a long time for that new supply to hit the market.
Bottom line, industrial metals bottomed earlier this year and now every single base metal including copper has entered bull territory. For 2017, expect higher metal prices with small setbacks along the way.