CoCopper miners wobble as recession fears mount4 Jul 2022 10:35
There is a technical indicator that denotes when the transition from a bull market to a bear market has occurred. For copper, that took place on 8 June, when its 50-day short-term moving average price crossed from above to below its 200-day long-term moving average. Not everyone is an advocate of technical analysis, but in this case it certainly chimes with market fundamentals, at least in the near term. What’s more, copper isn’t an outlier; net-long positions for a range of industrial commodities have withered to a two-year low.
We can surmise, therefore, that there must be a speculative element in copper’s recent price weakness, particularly given that the purchasing managers' index (PMI) for China's manufacturing sector rebounded into expansionary territory in June. China is the leading importer of copper ore, but the country’s economic recovery has been hobbled by Beijing’s insistence on eradicating the Covid-19 virus altogether, a noble if somewhat unrealistic aim. At any rate, any pick-up in Chinese orders would probably fail to compensate for the aggregate fall in industrial demand in western economies.
Although speculative short positions will remain in evidence for the foreseeable future, the market fundamentals for the metal over the long haul remain highly favourable. At Antofagasta’s (ANTO) recent annual meeting, its chairman, Jean-Paul Luksic, reiterated the view that “copper has a vital role to play in helping countries, cities and companies to decarbonise”, although he went on to point out that “the effect of grade decline and depletions will lead to a growing supply gap”.
That’s the long-term price dynamic in a nutshell. It also suggests that copper miners will be on the hook for increased capital allocations if persistent supply deficits are to be avoided, along with the negative implications for the journey to net zero. Rystad Energy projects that demand for the metal will increase by 16 per cent through to the end of the decade, meaning that global demand will outstrip supply by more than 6mn tonnes by 2030. Last year, global production came in at around 21mn tonnes. Leaving aside the vagaries of operational issues and intensifying capital demand, the pricing outlook for Antofagasta and industry peers is set fair despite current weakness.
Tail end of long IC article released online today
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