Is this a serious rebound in copper prices? Hmm... we still doubt it.
The monthly Copper MMI® registered a value of 77 in May, an increase of 2.7% from 75 in April.
Not a Demand-Based Surge
Copper prices have surged so far this year but prices are still well below what they were just a year ago.
Demand coming from China is still weak. We believe that traders likely won't get evidence of a meaningful uptick in demand as Chinese demand remains weak and not likely to make a significant comeback in the medium term. Therefore, demand alone has little chances of supporting prices through the balance of the year.
Supply Side? Nope
On the supply side, there have been some constraints in Chile (the largest copper producing nation) because of climate and labor problems. On the other hand, major copper miners are cutting costs. This helps miners keep producing even while copper prices fall, as major input costs like crude oil declined. Just this year, the industry’s total costs on average fell 6%. The industry seems well-supplied and at this point, we don't see warnings in the supply side with the potential to dramatically change the direction of prices.
What IS Causing the Rally?
With this said, two things seem to be causing the recent copper's rally:
- Traders buying the dips and those covering short sales after copper prices fell sharply in previous months.
- The dollar is finally taking a breath after rallying for nine straight months. This is helping support metal prices this year. We are seeing that in oil prices as well, which are more stable since February.