Copper Strikes

Will 2017 be the year of labor strikes in copper? When has the news for copper ever been more Bullish? Consumption expectations are rising and supply projections are falling! Is it time to Sell?

 Demand for copper is growing faster with renewed global growth, forecasted Trumpian economic incentives along with more Chinese usage. A strike today has shut down production at Chile’s (BHP’s) Escondida, the worlds largest copper mine and supplies are now reduced at Grasberg, the worlds 2nd largest copper mine. Escondida accounts for 5% of global copper output. Further strikes and mining delays at many other mines seem likley in coming months. Commodity pit traders, Hedge Funds and esteemed Goldman Sachs have unanimously echoed these very Bullish fundamentals in forecasting higher copper through the first half of 2017.

What stands out to us – so far – is that Bhp Hilton’s stock (Escondida owner) did not drop upon the news of a strike at its mine and the price of copper did not rise, it fell. A collective yawn at the prospect of shutting down the worlds biggest mine for a month or more? An old adage is: Buy the rumor and Sell the news! If Copper can’t move higher in the face of accelerating consumption prospects and decelerating production and shrinking stockpiles, then maybe prices are vulnerable should the Bullish news subside. New Chinese economic growth data can be the “news” that keeps prices higher for longer, so being nimble during this  $2.60 – $2.75 trading range is paramount near term. Over $2.75 to 2.77 means Bullish news is creating a final panic phase with price potential into the mid 2.80’s near term and eventually 3.05 to 3,10 before a topping zone can form. Despite the overbought nature of this leg up, copper – like many commodities – remains in the early to middle innings of a Bull market.

While “records are made to be broken”, Large Spec funds and Managed Money have bought a record amount of copper since November, indicative of Bullish exhaustion after a 65% surge in price. As seen below, all previous extremes in Commitment of Trader positions net longs by Money Managers in Copper have coincided with significant price peaks. Certainly these Bullish hedges could continue to witness more extended records in the face of growing mine strikes around the world, but the 3 months of sideways price action without a heartbeat upon the news of a major mining strike, should cause concern for Bulls. Perhaps more strikes will maintain the optimism, but what if rumors begin that this strike may be settled soon? Ending the labor strike may send prices sharply lower.

After the November rally, Goldman Sachs did a 180: instead of forecasting $2.10 they suddenly jumped on the Bulls bandwagon projecting an easy layup to $2.81 during the 1st half of 2017. Should prices break out above the current 20 month highs over $2.75, then a move above $3 becomes the technical target. Until then, with the $2.70’s as the key resistance zone, we would venture to be the lone wolf warning of lower prices by the 2nd quarter. Bullish copper news of new strikes or stronger economic news out of China will have to continue pouring in to delay the mantra of buying the rumor and selling the news. Watch resistance at $2.75 for a breakthrough that would “quickly” target copper at $2.86-2.87 !


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