Copper Fears Recession :: InvestMacro


by Ino.com

Copper futures hit an all-time high this spring. This is not a surprise to many readers who suspected that – See the survey from late August.

The price peaked at $5.04, and lost the predefined target area between $5.36 – $5.41. After that, copper futures collapsed down the valley last summer ($3.96) in the $3.60 region.

See the latest statistics for the copper market in the table below.


Source: International Copper Study Group (ICSG)

According to the above table, the world’s refined copper production rose to 8.44 million metric tons in the first four months of this year, compared to 8.16 million metric tons for the same period last year.

At the same time, global use or demand either grew to 8.35 million metric tons in January-April this year from 8.17 million metric tons last year.


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As a result, this year’s copper balance turned into a surplus of 95 thousand metric tons compared to a deficit of 3 thousand metric tons last year. Moreover, if we take the last line of the table showing the refined market equilibrium adjusted for the change in the Chinese bond stock in oversupply by 213 thousand metric tons.

As we can see, market fundamentals could have undermined the uptrend in the copper price in the first place. The speed following the futures crash was fueled by Fed hawks, Chinese shutdowns, and a terrifying new mantra recently circulating in the media about the upcoming recession.

One could call it a self-fulfilling prophecy as last Friday the Federal Reserve in Atlanta recorded a second consecutive quarterly drop in real GDP in GDP now tracker. The second quarter reading was minus 2.1%, the first quarter’s reading was minus 1.6%. Technically, this could mean that Expected recession It is already here.

Helping economic data from the charts below confirm the economic headwinds for the copper market.

US PMI vs. Copper

Source: tradingeconomics.com

The US ISM PMI (in blue) fell to 53 in June 2022 from 56.1 in May, indicating the slowest growth in factory activity since June of 2020, and below market expectations of 54.9.

The strong bullish trend for copper futures (black) in 2020 was in agreement with the US PMI until the beginning of 2021 as factory activity peaked and then started to collapse. Copper price initially continued to rise in the stagnation of the market and then fell dramatically to finally catch up with the current fundamentals.

Chinese industrial production vs. copper

Source: tradingeconomics.com

A similar situation is seen in the above chart of Chinese industrial production (in blue). The “Global Factory” performance also peaked last year, overtaking the top in (black) copper futures contracts.

We can see here that the metal has more room to fall in the $3 region to reach the level corresponding to the Chinese data. It is worth noting that industrial production in China grew 0.7% recently after the easing of COVID-19 restrictions in some major Chinese cities.

US consumer confidence against copper

Source: tradingeconomics.com

To complete the picture, we should look at the above chart which shows US consumer confidence (in blue) as a leading indicator of initial demand.

The situation is more bleak here as we cannot see any progress since the outbreak of the epidemic. The index made a slight bounce during consolidation in 2020 and then continued its downtrend reaching a record low of 50.0 in June 2022.

Let’s look at the updated copper futures chart below.

Copper futures monthly

Source: TradingView

Copper futures price is going well with the plan Posted nearly a year ago. It hasn’t progressed much to the upside to fit the extended consolidation pattern. We entered the red leg 2 down.

The latter could either unfold like the first hit in a row with panic selling amid the 2008 financial crisis or it could build zigzag with a corrective phase in the middle of the decline. Often, the two legs are not the same.

Two potential targets can be put down. The closest is calculated using the distance of the first red leg down minus the new all-time high; Aim for $2.02. This area coincides with the valley of 2016 and 2020.

The next target is an old target as it is at the lower end of the first red leg down at $1.25.

The RSI has fallen below the so-called “waterline” below the crucial 50 level. If this month closes, the downtrend will be confirmed.

Smart Deals!

Ipek Burabayev
Contributor to INO.com

Disclosure: This shareholder has no positions in any of the stocks mentioned in this article. This article is the opinion of the contributor himself. The above is a matter of opinion and is provided for general information purposes only and is not intended to be investment advice. This contributor does not receive compensation (other than INO.com) for their opinion.

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source: Copper fears stagnate


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