The ascendancy of Trump marked a sharp rise in Industrial commodities with copper being the biggest winner among the base pack.The red metal was lingering at multi year lows as demand was a cause of concern with sluggish economic recovery around the globe. Shorting copper seemed to be the favored trade with good healthy returns. In fact the fundamentals looked so poor that some analysts started predicting a sub 4000 level of copper going forward.Copper caught up with them and had reached 6025 levels at one point in time. Just two months back this level looked a bit far fetched.So has the fundamental changed in the intervening period ?
Perception may have changed but fundamentals have not moved a mountain. We will have to take into consideration that copper already lagged in terms of prices irrespective of the fundamentals and as sentiments changed after the US elections it triggered the pent up anger of copper bulls ! Moreover if we go back in history than after 2008 copper reached 10000 levels due to easy liquidity and fiscal stimulus. Though the new President has hinted at government spending but the magnitude, scale and circumstances back then cannot be compared with prevailing economic conditions.
Supply has never been an issue Peru has steadfastly increased production with new stream mining investments always on the rise. A report on the wires indicated supply tightness for the material in world’s biggest consumer China with a share of 53 %. But rumors doing the round were mining companies joining hands unofficially to create supply tightness so that they can better negotiate rates for 2017 from Chinese companies for ore separation and smelting.Before we jump to any conclusion we can probably safely say that a bottom has been formed for the red metal in the long run and it has been a healthy development for the market participants with copper springing into action and a positive price reversal.
Demand looks better placed as global economy stabilize, though sluggish in nature. Also with US increasing their infrastructure spending demand will go up.Projected inflation is set to rise and this in turn can increase the demand for capital goods which is positive for the copper industry.Housing has seen decent growth and with perceived notion that inflation will go up than construction will get a fillip.Another factor that is fast gaining ground is sale of electric cars.Sale of electric car is showing double digit growth and is adding to the demand side of the red metal.
What ever happens in future but the gloom surrounding the base metals has certainly lifted and in the long run it is a healthy development for traders and investors alike .Meanwhile we analyse the markets and try to prepare them for the next financial year .
Good luck and cheers !