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4 Reasons Why Copper Price Rally Has More Room to Run (With Charts)

Copper Price

Copper price is sitting pretty at the highest point since January 23. The price is now trading at $2.7385, which is significantly higher than the YTD low of 1.9686. Also, the price has just had the best quarter in decades. Here are the four main reasons why the price of copper has more room to run.

Copper demand rising

Copper price will likely continue rising as global demand continues to rise. For one, recent manufacturing PMI data from the United States, Europe, and China has been relatively positive. These numbers point that the manufacturing sector is coming back as these countries start to reopen their economies.

China manufacturing PMI rising
China manufacturing PMI rising

Another reason why the price of copper is likely to continue rising is the recently announced infrastructure spending. According to the International Monetary Fund (IMF), global economies have launched a stimulus package worth more than $11 trillion. Most of these funds have gone to people directly while others have gone to companies.

Another amount has gone to infrastructure projects. Just this week, the UK launched its own infrastructure project and in the United States, congress voted for a $1.5 trillion program. A substantial amount of this spending will go to green energy, 5G, and electric vehicles. All these are huge consumers of copper, which means that the price is likely to continue rising.

Copper supply falling

Copper price will also be supported by a decline in supplies. For example, this week, data from Chile showed that the copper mining had declined sharply in May because of the virus. With the number of infections rising, there is a possibility that supply will continue falling. Just last month, Codelco, the giant copper miner, said that it would reduce the number of hours per shift. It also closed a plant in El Teniente.

Chile copper production
Chile copper mining has declined in the past four months

Chile is not the only copper miner seeing higher infections. Peru and DRC, other leading copper producing countries, have reported high coronavirus cases. This could help rebalance the demand and supply and lead to higher copper price. Indeed, according to Bloomberg, stocks tracked in London, New York, and Shanghai have declined by 35% in the recent quarter.

Copper shorts falling

Meanwhile, in the futures market, more traders have started being bullish on copper price as shown in the chart below. According to CFTC, the bulls speculative positioning rose by 16.7k in the previous week from 9.6k. That is the highest positioning since March last year.

Copper CFTC
Copper speculative positioning

Copper price technical analysis points to higher price

On the daily chart, copper price has been in an upward trend since March this year. The price is now above the 50-day, 100-day, and 200-day exponential moving averages. It is also above the ascending trendline shown in pink.

Also, the RSI has just crossed the overbought level of 70, which means that it is not extremely overbought. Further, the price has just completed the three white soldiers pattern. Therefore, the price will likely continue rising as bulls attempt to retest the next resistance at $2.800.

On the flip side, a move below $2.6980 will invalidate this trend. This price is along the highest point on June 10.

Copper Price
Copper price technical forecast