Copper's plunge below $4 sends the Global X Copper Miners ETF below $40
August 5, 2024
Key Observations:
Two weeks ago, we noted that a price-elicited surge in scrap copper supply had reset a choke on value in refined copper futures contracts (Red Lasso Update, 25-Jul-2024). This made for poor timing to try to find a reversal at the 200-day moving averages. Last week, we spotlighted again the soft physical balances underlying the copper futures exchanges in New York, London, and Shanghai, as evidenced by rising inventories and rapidly steepening term structures. Heading into crisis-prone August, we cautioned that equity investors and others will likely respond negatively to CMX copper prices with a three handle (The cruelest month begins cruelly, 1-Aug-2024).
Sub-$4.00 prices arrived today with the fracas that tumbled across so many global markets. The intraday low in the prompt CMX copper price (HG1) was $3.93 per lb. This breach spilled into related equities with the predicted effect: the Global X Copper Miners ETF (COPX) lost 3.8% of its value to close below $40 per share for the first time since March 12. On a closing basis, this ETF’s price has dropped by 17.5% since July 5.
Where to now? First, recognize the strong supply-side effects at work here under conditions of wobbly interest rates. Global demand has softened incrementally, but this price discovery is not so entirely about demand as might be assumed given recession fears. Still, demand is fragile near term. The deterioration in the commodity price is likely incomplete. Thus, it looks premature to get risk-on in the equities. Reassess at $3.85 and/or Aug 14.
Source: CMX, Bloomberg, Blacklight Research.
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