Selling copper into the rally

Prices of most commodities bounced overnight as investors flocked to raw materials as a holder of value, following a global rout in the stock market.

Source: Bloomberg

Investor jitters were reflected with the bidding up of safe haven assets such as gold and yen. USD/JPY pulled back from Tuesday’s intraday high of 121.85 to as low as 118.00 before covering some of its losses.

One of the biggest jumps came from copper, where prices rose by nearly 3% from Tuesday’s intraday low of $2.8655 per pound to a high of $2.9505 per pound.

The spike in copper prices was further fuelled by news of a potential mining strike in Peru, which sparked supply concerns. Reports indicate that workers at Peru's biggest copper and zinc mine, Antamina, are likely to go on an indefinite strike today to push for a bonus and other benefits. The workers had just ended a 19-day strike on 30 November, which the mine said had not affected its production of around 30,000 tonnes per month. Antamina contributes about 30% of the country’s copper, where Peru is the world's third largest producer.

Will the push in copper prices be sustainable? In the longer term, the fundamentals have largely remained unchanged with the demand outlook still not showing any convincing signs of revival. Notably, Chinese macroeconomic data in the form of this week’s trade balance figures and last week’s Purchasing Managers Index (PMI) have continued to disappoint.

Copper prices along with other commodities should respect the longer term fundamentals, so any gains will be capped by the sluggish demand outlook. Once news of the mining strike peters out, prices are likely to return under pressure. This makes a pop in prices an attractive consideration to sell into the rally.

Click to enlarge

High grade copper prices are currently testing the resistance area of $2.9200. If it fails to break through this, it will be an indication of the rally being exhausted and a potential retracement to support at the $2.8000 level. In this scenario, we can expect it to continue respecting a downtrend line formed over the past few months.

From a technical perspective, for a sustainable climb to start being considered, we’ll first need a clear break of prices above $2.9200 and the 20 daily moving average (DMA).

We will see some attention at 930am SGT on China’s producer price index (PPI) and consumer price index (CPI), where the consensus forecast is for factory prices to dip slightly and consumer prices to remain flat. The market consensus forecast is for PPI at -2.4% and CPI at 1.6%. Any disappointing figures will likely prompt a retracement in copper.

This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.

Find articles by analysts

Een artikel zoeken

Form has failed to submit. Please contact IG directly.

  • Ik wens per e-mail informatie van IG Group bedrijven te ontvangen over handelsideeën en IG's producten en diensten.

Voor meer informatie over hoe wij uw gegevens mogelijk kunnen gebruiken, bekijkt u ons Privacy- en toegangsbeleid en onze privacy website.

CFD’s zijn complexe instrumenten en brengen vanwege het hefboomeffect een hoog risico mee van snel oplopende verliezen. 79% van de retailbeleggers lijdt verlies op de handel in CFD’s met deze aanbieder.
Het is belangrijk dat u goed begrijpt hoe CFD's werken en dat u nagaat of u zich het hoge risico op verlies kunt permitteren.
CFD’s zijn complexe instrumenten en brengen vanwege het hefboomeffect een hoog risico mee van snel oplopende verliezen.