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Copper Surges 3% on Economic Stimulus Hopes, Slowing Pandemic

April 7, 2020 at 17:05 by Andrew Moran

Copper futures surged as high as 3% on Tuesday as investors are optimistic that the COVID-19 global pandemic is beginning to slow down. Copper traders are also betting that governments around the world will pull the trigger on stimulus spending to stimulate their respective economies. Copper has cratered this year, but it has rebounded in recent sessions.

May copper futures tacked on $0.0595, or 2.68%, to $2.277 per pound at 16:46 GMT on Tuesday on the Comex division of the New York Mercantile Exchange. The industrial metal has plunged more than 18% year-to-date, though most of its losses occurred during the market mayhem last month.

The consensus on The Street is cautious optimism. The latest data suggest that coronavirus cases are beginning to fall, and many officials around the world say that countries could gradually reopen their economies. Japan, however, has declared a state of emergency and there are concerns about second waves should nations return to normalcy.

China confirmed a decline in new COVID-19 cases, Italy has found a slowdown in reported new infections, and several parts of the hardest-hit regions of the US have highlighted a drop.

If economies return to normalcy, analysts anticipate governments to pull the trigger on economic stimulus packages, which would most likely involve public-works projects. Copper is a metal that would benefit from such an environment. But what about supplies?

In warehouses monitored by the London Metal Exchange (LME), copper inventories are tumbling. Chile, the world’s top copper producer, announced that its producers could institute output cuts due to government restrictions to contain the virus outbreak. Both factors contributed to the red metal’s 3% gain this week.

Whether it is a swift rebound or a virus-induced recession, copper prices could test $2.50 by the summer.

Daniel Briesemann at Commerzbank in Frankfurt might have said it best:

I don’t think that we’re out of the woods yet. Demand issues are more severe than the reduction of supply and I think it’s too early to say that it’s all okay now. I won’t be surprised to see lower or even much lower prices in the next few weeks.

Once we get more data on either the economic situation in general or the demand side of the metals, I think this data will be devastating and that could put the rally to an end.

That said, funds have slashed their exposure to copper, according to a Commitments of Traders report by the Commodities Futures Trading Commission (CFTC). In the week ending April 2, funds held a net short position of 24,220 contracts, while net long positions stand at a four-year low of 29,422 contracts.

In other metal commodities, June gold futures fell $4.80, or 0.28%, to $1,689.10 per ounce. May silver futures picked up $0.32, or 2.12%, to $15.49 an ounce. May platinum futures jumped $11.80, or 1.61%, to $743.80 per ounce. May palladium futures spiked $23.20, or 1.12%, to $2,100.00 per ounce.

If you have any questions and comments on the commodities today, use the form below to reply.

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