Is This Week’s Drop a Turning Point for Copper ETFs?
Despite the price action, the fundamental story for the metal remains supportive long term.
Weak data on China’s industrial production sent copper prices to a five-and-a-half-month low this week, but the anticipated commodities supercycle bodes well for the metal’s long-term outlook.
This week, traders overbid the metal in anticipation of the mainland’s reopening this spring, and overreaction to April’s softer numbers is now coinciding with a seasonality of the industrial metal that usually bottoms in June.
May 16 looks like a classic oversold inflection point—an “abandoned baby doji” in technical analysis—and the terminus of a four-month moving average convergence/divergence downtrend that started Jan. 18.
ETF buyers should consider the United States Copper Index Fund (CPER) and the iPath Series B Bloomberg Copper Subindex Total Return ETN (JJC).
Commodities Super Cycle?
Supply constraints will continue to be an issue for the next two years. The International Copper Study Group sees the global copper market is facing another year of deficit, with its May 10 forecast predicting a gap of 114,000 tons in 2023 after the 431,000 ton shortfall last year.
More broadly, Goldman Sachs expects a mid-decade commodities supercycle due to years of underinvestment and new demand from the EV revolution. Its analysts are calling for an average of $9,750 per ton in 2023, rising to $12,000 per ton in 2024, and ultimately $15,000 per ton by 2025.
China’s reopening is intact, even if it saw more strength in services initially. A weaker dollar, stabilized U.S. interest rates and the stronger-than-expected homebuilding in the U.S. this year should support the metal further.
Construction of new homes rose 2.2% in April, as U.S. homebuilders continue to see robust demand from millennials. High interest rates are keeping Americans in their existing mortgages, so new listings of previously owned homes are low. Homebuilders are seeing—and expect to continue seeing—strong demand from young families who see fewer options in the resale market.
Copper prices have drifted down almost 9% from their peak in mid-January. This week’s final drop has the feel of a turning point.
