Copper seems to be a one-way bet the last six months.
The copper price has risen from a low of $4,371 per metric ton in March last year to $8,631 per metric ton Friday on the LME.
According to Reuters, Goldman Sachs and Citi are doubling down on their bull calls for the copper market. The banks have raised their 12-month price target to $10,000 per metric ton.
Copper price drivers
Exchange-traded stocks are low. China has been buying voraciously as its economy bounced back from the early spring 2020 lockdown.
Many bulls are touting the green revolution story as reasons to buy. Automakers’ announcements of impending ends to the internal combustion engine and a total switch to electric has fueled projections of soaring demand.
Meanwhile, a lack of new mine investment over the last few years leaves the supply landscape short of new projects to meet projected demand.
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Reasons for pause
But not everyone is buying into the relentless rise in the copper price — at least not in the short term.
Reuters, for one, goes on to report net long positions on the CME and LME plateaued last year and have been matched by an increasing wariness being expressed as an increase in put options – insurance in the event of price falls.
The news source reported while funds remain heavily long of copper on both sides of the Atlantic, net positioning has flattened out since October. This suggests a reluctance to commit more money to the rally.
On the CME, money managers were net long of the CME copper contract to the tune of 87,671 contracts last week, Reuters reported. The total came in below last October’s peak of 91,578 contracts and a good 30% off the levels seen in the 2017 bull surge.
“It is noticeable in the world of metals that more and more industrial clients are buying downside put option structures to protect themselves against a collapse in prices and particularly in copper and nickel,” Reuters quoted an LME broker as saying.
Most bull markets have short-term retrenchments.
So, for investors to take profits and the copper price to fall back should not come as too much of a surprise after such a strong rise in prices.
Furthermore, it does not undermine the longer-term bull narrative for the metal. It does suggest, however, copper consumers think carefully before fixing all their requirements for the year at today’s price.
Maybe the relentless copper price rises are not a given. However, the trend line has been strong to date.
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