Copper futures are extending their long-term trend line to kick off the trading week, hitting an all-time high on soaring demand and economic optimism. The consensus on Wall Street is that copper prices have a long way to go, although there are risks that the industrial metal could face a short-term correction. Will copper prices hit $5 before the end of the month?
June copper futures surged $0.065, or 1.37%, to $4.8135 per pound at 13:18 GMT on Monday on the New York Mercantile Exchange. Copper prices have been on a tear this year, rising 20% over the last month and nearly 40% year-to-date.
The red metal has already exceeded 2011 highs to enjoy fresh record highs. But what is driving copper to unprecedented levels?
Fundamentally, there is monster demand worldwide at the same time, led by China, which has unleashed a $500 billion infrastructure spending plan. For the last couple of years, the sector has warned of falling production levels due to closing mines and new operations not starting up in time.
But there have been some recent developments to support copper prices even more. The Chilean government recently approved a progressive rate on copper, placing a hefty tax burden on the mining industry and potentially affecting copper investments. This led to a spike in copper prices since Chile is the world’s largest copper producer.
A weaker greenback has further lifted dollar-denominated commodities, including copper. The US Dollar Index (DXY), which measures the greenback against a basket of currencies, tumbled 0.12% to 90.13, from an opening of 90.21. A lower buck is good for commodities priced in dollars since it makes it cheaper for foreign investors to purchase. The dollar has nearly erased its 2021 gains as the DXY is up only 0.2%.
But the monumental surge in copper prices could result in a correction, much like what happened with crude oil prices last month as they posted a large rally in a short period. Industry experts point to the 14-day Relative Strength Index (RSI), which finds that the metal is overbought. If this results in a dip, market analysts think it would be worth buying since demand is unlikely to subside.
Bank of America commodity strategist Michael Widmer contends that the world is “running out of copper,” adding that it could be “the new oil”:
“Linked to that, we forecast copper market deficits, and further inventory declines, this year and next. With (London Metal Exchange) inventories close to the pinch-point at which time spreads can move violently, there is a risk backwardation, driven by a rally in nearby prices, may increase.”
In other metal markets, June gold futures rose $9.50, or 0.52%, to $1,840.80 per ounce. July silver futures picked up $0.333, or 1.21%, to $27.81 an ounce. June platinum futures tacked on $12.30, or 0.98%, to $1,266.80 per ounce. June palladium futures soared $59.90, or 2.05%, to $2,986.00 an ounce.