Copper Fears Recession

The copper futures hit an all-time high this spring. This is not a surprise to many readers who suspected it would - see the poll from late August.

The price has topped at $5.04, missing the preset target area between $5.36-$5.41. After that, copper futures collapsed below the valley of the last summer ($3.96) in the area of $3.60.

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

World Refined Copper Usage and Supply Trends

Source: The International Copper Study Group (ICSG)

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

At the same time, the world usage or demand has grown up either to 8.35 million metric tons in January-April this year from 8.17 million metric tons last year.

As a result, this year the 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 that shows the refined balance of the market adjusted for the Chinese bonded stock change is in even bigger oversupply of 213 thousand metric tons.

As we can see, the market fundamentals could have undermined the uptrend in the copper price in the first place. The following speed up of the futures collapse was fueled by the hawkish Fed, Chinese lockdowns and a new scaring mantra that has been circulating recently in the media about upcoming recession.

One could call it a self-fulfilling prophecy as last Friday the Atlanta Fed posted a second quarterly decline of a real GDP in a row on its GDPNow tracker. The second quarter reading is minus 2.1%, the first quarter reading was minus 1.6%. Technically speaking, this could mean that the forecasted recession is already here.

The auxiliary economic data from the graphs below also confirms the economic headwinds for the copper market.

US PMI vs Copper


United States ISM Purchasing Managers Index (PMI) (blue) fell to 53 in June of 2022 from 56.1 in May, demonstrating the slowest growth in factory activity since June of 2020, and below market forecasts of 54.9.

The robust uptrend of copper futures (black) in 2020 was in an accord with U.S. PMI until the start of 2021 where the factory activity has peaked and then started to collapse. The copper price firstly continued further up on the market inertia and then dropped huge to finally catch up with the current fundamentals.

China Industrial Production vs Copper


The similar situation has been seen in the chart above of Chinese industrial production (blue). The “World’s factory” performance has also peaked last year, ahead of the top in copper futures (black).

We could see here that the metal has more room to the downside into the $3 area to reach the corresponding level of Chinese data. It is worth to note that the industrial production in China has grown up by 0.7% recently after a relaxation in COVID-19 curbs in some major Chinese cities.

US Consumer Sentiment vs Copper


To complete the picture, we should look at the chart above that shows the U.S. consumer confidence (blue) as a main indicator of the initial demand.

The situation is even more depressed here as we can see no progress since the pandemic outbreak. The indicator just made a small rebound within the consolidation in 2020 and then continued to the downside to hit the record low of 50.0 in June 2022.

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

Copper Futures Monthly

Source: TradingView

The copper futures price goes well with the plan posted almost a year ago. It didn’t advance too much to the upside to fit with the extended consolidation pattern. We entered the red leg 2 down.

The latter could unfold either like the first straight leg down with a panic selling amid financial crisis of 2008 or it could build a zigzag with a corrective phase in the middle of the drop. More often than not, two legs are not alike.

Two possible downward targets could be set. The closest one is computed using the distance of the first red leg down subtracted from the new all-time high; it is aimed at $2.02. This area coincides with the valley of 2016 and 2020.

The next target is an old one as it Is located at the minimum of the first red leg down at $1.25.

The RSI sank below the so-called “waterline” beneath the crucial 50 level. If it closes this month there than the bearish trend is confirmed.

How deep could the copper futures collapse?

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Aibek Burabayev Contributor

Disclosure: This contributor has no positions in any stocks mentioned in this article. This article is the opinion of the contributor themselves. The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. This contributor is not receiving compensation (other than from for their opinion.

Copper/Gold Ratio At Epic Decision Point

Copper/Gold ratio teases cyclical inflation bulls and bears alike, but… it’s going to break one way or the other soon enough.

If you value gold’s standing in relation to industrial metals as a key market/financial/economic indicator as I do, then you view the ongoing consolidation in the copper price to the gold price as a key indicator (among several NFTRH tools) going forward.

I cannot make the macro do what I want it to do, but I sure can be super interested in an indicator that has made several false moves to the positive and negative sides in 2021 as we head into a year of changes to come (one way or another) in 2022. Cu/Au is making less and less volatile spikes and drops as it is currently pinched between the converging daily SMA 50 and 200.

They call him Doctor Copper because in the post-2000 world of Inflation onDemand © 🙂 (as originally concocted by the Maestro himself, Alan Greenspan and expanded ever so maniacally by Ben Bernanke on through the current Fed regime), the cyclical economic doctor metal is a key foil to the counter-cyclical monetary historian metal. Continue reading "Copper/Gold Ratio At Epic Decision Point"

Copper Is On The Verge

Almost two years ago, in my previous copper update, I called for a big jump of the metal’s price to an ambitious target of $4.65 in the quarterly chart. I put it below to refresh the memory.

Copper Chart

Firstly, the price collapsed to pierce the double support shown in the chart. Only after that, it quickly rebounded to the upside as it hit the preset target of $4.65 this May. I hope you enjoyed that long rally.

Another model, posted almost three years ago within an educational experiment advanced very well, although it did not hit the target yet, as did the pattern shown above. That charting exercise drew a lot of attention and feedback at that time. Moreover, the majority of readers bet on this well-known pattern. Continue reading "Copper Is On The Verge"

Metals Ratios Continue To Indicate Inflation

And that is welcome for monetary and fiscal policymakers of course since inflation is the only trick they have up their sleeve to bail this mess out once again. And this is no comment on COVID-19. The economy was slowly decelerating last year well before COVID-19 showed up.

The yield curve bottomed and turned up in August of 2019 as manufacturing was slipping, long-term yields were tanking and other economic signals were fraying in the wake of the trade war. So please, no convenient COVID excuses.

See: Yield Curve Hits New 2019 Steepener Today

They were preparing to inflate because the Continuum told them to prepare. COVID-19 dropped the final hammer on the situation and brought the inflation on quicker and more intensely than might have otherwise been the case.

30 year yield

So anyway, on to the lovable Amigos. Continue reading "Metals Ratios Continue To Indicate Inflation"

The Copper/Gold Ratio Would Change The Macro

The Copper/Gold ratio is saying something. That something is that a cyclical, pro-inflation and thus pro-economic reflation metal shown earlier, remaining nominally positive on a down market day has, in relation to gold, taken out two important moving averages (daily SMA 50 & SMA 200) and is currently riding the short-term EMA 20 upward. RSI and MACD are positive.

Copper: Pro-cyclical inflation, pro-reflation, pro-economy.

Gold: Counter-cyclical, monetary, with inflationary utility.

Given the right circumstances (like desperate monetary and fiscal policy), which are in play on the wider macro, gold will probably do quite well moving forward. But maybe – for a while – not as well as some commodities if the Copper/Gold ratio really is up to something positive here.

copper/gold ratio

Side note: the Palladium/Gold ratio is on the verge of going positive as well and of course the daddy of inter-metal ratios, the Gold/Silver ratio is still on a big picture breakdown (Silver/Gold has broken above a key long-term resistance marker). So you might want to look at these three metallic indicators together (along with more traditional non-metallic inflation indicators) in gauging the process toward inflation. Continue reading "The Copper/Gold Ratio Would Change The Macro"