Demand has chewed through excess scrap copper supply: buy signal
August 27, 2024
Key Observations:
Coming into August (“the cruelest month”), we anticipated prompt copper futures would fail to find support at their 200-day moving averages and would flush to new multi-month lows. However, we believed this would happen not so much because of soft demand but because of temporary excess scrap supply forcing a build in exchange stocks.
When a meaningful flush did transpire immediately in the first week of August, we noted our first test to trigger reassessment of conditions would be whichever came first: (a) an $8,500 LME cash price, or (b) the date Aug 15. In the event, the low for LME cash was $8,641 (Aug 7). This made time our guide. By Aug 15, the z-score for our composite scrap price indicator had already begun a sharp reversal. But it remained below zero as “the cruelest week” began. We opted to wait.
During that week (Aug 15-21), oil prices dived into the CLU4 expiry and Gulf Coast natural gas prices swooned anew on their own temporary excess supply problem. But manufacturing demand continued to chew through the excess scrap copper stock, and our scrap z-score flipped positive on Wed Aug 21. Two days later Powell’s growth-friendly message at Jackson Hole underscored the likely sustainability of demand-side momentum, and z-scores for both scrap and primary copper prices are now looking like they can and will break out. This is a buy signal for copper futures and shares of copper miners.
Benefits: LPZ4, COPX, Teck, Ivanhoe, Lundin, Antofagasta, First Quantum, Southern Copper, Freeport McMoRan.
Source: SFE, Blacklight Research.
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