Copper Keeps Ripping

Copper has been powering higher in the last month.

This move adds another leg to a run that started a year ago. (To be fair, copper was trading around US$2.60 per lb. before crashing to just US$2.10 per lb. when COVID hit. So the chart below catches a bit of the COVID crash, but only a bit.)

This last month copper has traded higher no matter what other metals are doing, often even no matter what the US dollar is doing. I’ve discussed before the swath of bullish medium- to long-term narrative, which distill down to overall recovery plus green energy pushing demand higher against in sufficient supply.

In discussing copper, I had cautioned that a pullback might materialize. And so it did, sort of, with the price sliding from $4.25 per lb in late February to $3.98 per lb a few weeks ago.

Looks like that might have been it. The thing with copper is that, despite being a massive market that turns over 20 million tonnes of metal a year, it is also always a tight market. And the thing with tight markets is that they are easily disrupted and they respond to disruption, especially when the product in question is as essential as copper.

Events in recent weeks offer a good example. Chilean port workers called a strike for Monday, potentially limiting exports from the world’s top producer. Data from China suggests the economy there continues to boom in post-COVID recovery. The London Metals Exchange is in backwardation, which means traders are paying more for metal today than for future delivery, suggesting immediate supplies are tight.

And orders to remove metal from LME sheds (also known as cancelled warrants, something that happens more when supplies are tight and are expected to remain so for at least some time) have jumped to their highest in almost a year, making those orders account for almost half of the metal the exchange currently holds.

That’s a mix of forces, for sure. A potential strike is a very tangible thing; backwardation is a traders’ consideration. But they all impact sentiment and collectively they have pushed sentiment towards full bull.

Will it stay there? Your guess is as good as mine on the near term. The pace of accent in the last few weeks suggests potential for pullback but the red metal is also pushing towards its all-time high of US$4.54 per lb. or US$10.017 per tonne, which it hit about ten years ago.

Whether that All Time High watermark will entice or impede gains in the near term we’ll just have to see, but the latter is more likely. The market doesn’t easily forget lines in the sand.

But the bigger picture remains pretty clear to me: copper is a good place to be. Supply is simply insufficient to meet demand starting in only a few years. Prices are rising in response. That is and will continue to incentivize companies to explore and develop and build copper mines. And the market will reward those efforts.

In that vein I catch up this week with one of my favorite copper exploration plays, Pan Global. The PGZ share price has not moved much since I entered in mid-February but the La Romana zone keeps building and PGZ should be able to start testing similar targets on their adjacent property (Al Andaluca, for which they are waiting for the government to rubber stamp their permit) this year.

I am considering three other copper stories right now. One is a hybrid exploration-moving to development story. The other two are explorers. I’m not yet ready to make a move on any but I’m working through my questions.

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