Copper Climbs to 16-month High: Nov 2016

Copper prices have soared to $2.62 a pound on the COMEX — the highest since July 2015.
According to Bloomberg, copper’s relative strength index shows that the rally has gone too far. Analysts continue to be skeptical about the rally, citing that the combination of US President-elect Donald Trump’s promise of an increase in infrastructure spending, and China’s positive economic data, may be the reason why copper is trending upwards.

Copper Price Chart

Further, The Wall Street Journal cites that the price of oil inching upwards “sometimes sway copper prices.” Oil was up by 4 percent at the beginning of the week, with brent crude oil at $49 a barrel.

Trump’s infrastructure vision

Aside from building a physical wall between the US and Mexico, Trump’s “America’s Infrastructure First” policy is set to support construction, steel manufacturing, and other sectors to build the transportation, water, telecommunications and energy infrastructure. It is in this light that The Wall Street Journal noted that Trump’s infrastructure investment bodes well for copper.

Too much, too soon?

In a recent conversation we had with Rick Rule, he mentioned that he thinks the copper rally is a false one, and that the recent price moves “were a response to the fact that the industry’s productive capacity had been diminished.” David Morgan echoes the same sentiment, saying that he is waiting for, “a larger increase in the copper price out of the range it’s in right now.”
In an interview with Bloomberg, Wood Mackenzie’s Julian Kettle says that the red metal can still continue to be a leading indicator, but “the fundamentals are not supportive of a significant run up in prices.” Kettles cites that there is too much supply coming on, or risks around that supply.
Goldman Sachs, in a research note, says copper prices have rallied “too much too soon,” and expect a decline in price to C$5,000 per ton on a 3-month view. The note continues to say that they expect Chinese global copper demand to slow down in the near term as Chinese property policies tighten.

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Securities Disclosure: I, Pia Rivera, hold no direct investment interest in any company mentioned in this article.