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Copper is an infrastructure building block. China is the leading copper consumer, and the weakness in the Chinese economy has weighed on copper since the red metal reached a record high of just over $5 per pound in March 2022. Meanwhile, COMEX copper prices have decreased to below the $4 per pound level, with LME forwards falling under the $8,500 ton level.

Aside from its role in infrastructure, copper has become what Goldman Sachs calls “the new oil” because of its role in green energy initiatives.

Copper’s price has been consolidating in a holding pattern, but it may only be a matter of time before the consolidation ends and the price moves significantly higher.

In a December 19, 2023, Barchart article, I wrote:

The odds favor higher copper prices in 2024. Meanwhile, any long risk position requires leaving room to add if the prices fall over the coming weeks. Picking bottoms is always a dangerous venture in the volatile commodity asset class.

Nearby COMEX copper prices have fallen in early 2024 to under $3.70 per pound.

Copper futures have moved lower in early 2024

COMEX copper futures posted a 2.10% gain in 2023, settling the year at $3.8905 per pound on the nearby contract.

The monthly chart shows at $3.7100 on February 13, the copper futures were 4.6% lower in 2024.

Copper forwards decline

The London Metals Exchange is the hub of international base metals trading, and copper is a leading nonferrous metal. LME copper forwards posted a 2.23% gain in 2023. The three-month copper forwards settled at $8,559 per ton on December 29, 2023.

The chart highlights at $8,260 per ton on February 13, three-month copper forwards were 3.5% lower in early 2024.

Mine supply is a problem if the demand increases

Many analysts believe that copper demand will soar over the coming years because of rising green energy requirements. Robert Friedland, founder and chairman of Ivanhoe Mines, has said that copper prices need to double from the current level to prompt mining companies to build costly mines to meet rising demand for critical materials.

Bringing new copper production online takes the better part of a decade. As the metal’s fundamental equation tightens with rising demand and static supplies, copper could move into a multi-year deficit, creating shortages and increasing prices.

U.S. interest rates and the Chinese economy are critical

Over the coming weeks and months, the essential factors for the path of least resistance of copper prices are U.S. interest rates and China’s economy.

The U.S. dollar is the world’s reserve currency and copper’s pricing benchmark, even though the most liquid copper exchange, the London Metals Exchange, is in London. The dollar’s value against other world currencies is a function of interest rate differentials. Since March 2022, rising U.S. interest rates have supported the dollar. Higher U.S. rates and a strong dollar tend to weigh on copper and other commodity prices as it increases the cost of carrying inventories, and a strong dollar makes raw materials more expensive in other currencies. Conversely, declining U.S. rates and a weakening dollar tend to support higher copper and other commodity prices.

The U.S. Fed has likely reached its peak in credit tightening, and the odds favor interest rate cuts later this year. This would lower the cost of carrying inventories and push the U.S. dollar’s value lower. Stable to lower U.S. rates and a weaker U.S. currency could support copper and other metals prices.

Meanwhile, China is the demand side of copper’s fundamental equation, as Chinese demand accounts for more than half the refined copper produced annually. China’s economy has faltered over the past years, but the country remains the world’s second-leading economic power and nearly equal with India in total population. Any improvement in China’s economic environment could cause a sudden increase in copper demand, exacerbating an already developing fundamental deficit.

CPER tracks copper prices higher and lower

The most direct route for a risk position in copper is via the COMEX futures and futures options or the LME forwards and forward options. The U.S. Copper ETF product (CPER) is a liquid product that holds copper futures contracts. At $23.07 per share on February 13, CPER had $119.5 million in assets under management. CPER trades an average of 66,430 shares daily and charges a 0.88% management fee.

COMEX copper futures prices declined 4.6% over the first six weeks of 2024.

The chart illustrates the 4.4% drop that took CPER from $24.14 on December 29, 2023, to $23.07 per share on February 13, 2024.

While copper futures and forwards trade around the clock, CPER is only available during U.S. stock market hours. Therefore, the ETF could miss highs or lows when U.S. stocks are not trading.

CPER does an excellent job tracking copper futures prices over time. If Robert Friedland and many commodities analysts are correct, CPER and copper could be at a bargain basement price in mid-February 2024.

Meanwhile, since it is virtually impossible to pick bottoms in any market, leave lots of room to add on further declines as prices can drop to irrational, unreasonable, and illogical levels that defy fundamental and technical analysis.

Timing is everything in markets. While the odds favor higher copper prices in 2024, those higher levels could come suddenly from lower ones.

On the date of publication, Andrew Hecht did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.