Copper sinks to 17-month low as slowdown fears reinforced
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London copper prices continued their descent on Friday to a 17-month low as data showed euro zone inflation hitting another record high in June, reinforcing fears that central bank tightening will push economies into recession.
According to Reuters, three-month copper (HG1:COM) on the London Metal Exchange recently was -2.9% to $8,017/metric ton after tumbling to its weakest level since February 2021 at $7,959/ton.
Base metals equities indicated lower in the pre-market include (NYSE:FCX) -3.3%, (TECK) -3%, (SCCO) -2%, (AA) -1.9%, (RIO) -2.9%, (BHP) -3.8%, (VALE) -2.5%.
ETFs: (NYSEARCA:COPX), (CPER), (JJC), (JJCTF)
Inflation data "looks alarmingly high, giving more firepower to the ECB," Nitesh Shah, commodity strategist at WisdomTree, told Reuters. "Every time there's an indication of more hawkish policy, markets fall further."
"Recession concerns have gained the upper hand and weighed on metals prices," Commerzbank analysts Carsten Fritsch and Barbara Lambrecht said.
Even news that China's manufacturing activity expanded at its fastest in 13 months in June failed to boost sentiment.
The most-traded August copper contract in Shanghai ended daytime trading -4% at 61,630 yuan/ton ($9,190.96).
LME aluminum, nickel, tin and zinc all fell by 2%-4%.
Spooked by recession fears, copper prices plunged 20.4% in Q2, the biggest quarterly decline since 2011.
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Comments (40)
The July 13th CPI report should provide some clarity as to where we're headed in the 2nd half of 22. If it increases by any amount, commodities are likely to continue a downward spiral for a while. I am starting to place (test) LEAP long calls out to Jan 2024 on several metal stocks such as FCX, AG, AA, etc . The OIC will introduce new LEAP options on Sept. 12th, extending many commodity options into 2025, I always place LEAP Long Calls as far out as is available, and DITM, with a Delta of 85 to 90. These types of "high leveraged" calls have produced some of my best results in the past 3 years. It was Oil, NatGas & Iron ore back in 2019 & 20, but those are not on my radar right now. It would be interesting to hear what some of ya'll are thinking about specific metals, ores and individual stocks.
@Stadtmueller Hi, I am very intrigued by the LEAP LONGs you mention.
Are they simply far out Long Options? I imagine you must buy them with a strike price at the money or a little out of the money, when the stock is cheap (eg RIO now), calculating that the chances for the stock to be much higher 6,12,18 months out. Is this what you mean? If not, would you care to briefly describe the "LEAP LONG" Option technique? :)
Thanks,
Are they simply far out Long Options? I imagine you must buy them with a strike price at the money or a little out of the money, when the stock is cheap (eg RIO now), calculating that the chances for the stock to be much higher 6,12,18 months out. Is this what you mean? If not, would you care to briefly describe the "LEAP LONG" Option technique? :)
Thanks,
@Stadtmueller p.s. sorry but what is DITM, and the Delta of 85 to 90 you mention?Chears!
@alex.c DITM means " Deep In The Money" DITM long calls have a much higher success rate as opposed to ATM or OTM. A DELTA of 85 to 90 just means that for every $1.00 the underlying rises, your option value would increase by 85 to 90 cents, almost like owning the stock, but with increased leverage.
"Dr. Copper" is said to have a PhD in economics because copper price trends have proven predictive of changes in the global economy. Copper's the 3rd most-consumed industrial metal in the world (behind iron ore and aluminum). This reddish-gold metal has a range of industrial uses, and is often used in electronics due to its high electrical conductivity; demand for copper is also reflected in it's ability to be easily shaped into wiring, and it's also a good conductor of heat.My thesis...
EVs CONTAIN 3.5 TIMES MORE COPPER than gas/diesel powered cars, trucks, & busses, and will eventually replace non-EVs--beginning with cars in developed countries, thus copper's long-term demand will accelerate due to this new and increased demand. Presently, transportation is last in copper demand by category: about 65% for electrical, 25% industrial, and ONLY 10% used in transportation and other areas.IMO, $SCCO is in position to greatly benefit from a Nesbitt-like copper "Megatrend" to which I'd like to take advantage. It's also an alternative to picking the winners among EV makers.Perhaps most important to my thesis, while many companies produce copper, only a few presently have sufficient reserves to expand their copper production. SCCO has large reserves, viable expansion projects, and prioritizes copper.Southern Copper (SCCO), is presently the world's 5th largest copper producer, and is awarded a Wide Economic Moat by Morningstar, and has both mining and smelting operations. A major future competitive advantage is its ability to expand production to meet increased demand because it already has THE WORLD'S LARGEST COPPER RESERVES--68 million tons. Countries having the world's largest copper deposits are Chile and Peru (not China and Russia). Southern is also a refiner of gold, silver, zinc, lead and molybdenum--but almost 80% of its revenue is derived from the sale of copper.Thus I've entered a limit-buy order to initiate a position in $SCCO on the expectation that global economies turn positive, and its shares will likely grow faster than its competitors as EV demand accelerates into the mid-2030s, and beyond before leveling off after demand in the developing world finally catches up. While I wait, SCCO pays a near 10% dividend. BTW, a case can also be made for $BHP, which has nearly as much copper reserves, though copper production ranks 2nd to iron ore. Other candidates some may prefer: Copper is the largest contributor at $FCX; Copper is the 2nd largest contributor to coal at $TECK; and the 3rd largest contributor at $RIO. For myself, SCCO is preferred because it relies on copper, and thus increased demand will flow through to its bottom line. In addition, companies having an increased need of copper are likely to look for sources that both specialize in it, and have the reserves to meet decades of increased demand. That its dividend yield is the highest is another plus.[Were I an SA author, this would be the thesis for an article]
EVs CONTAIN 3.5 TIMES MORE COPPER than gas/diesel powered cars, trucks, & busses, and will eventually replace non-EVs--beginning with cars in developed countries, thus copper's long-term demand will accelerate due to this new and increased demand. Presently, transportation is last in copper demand by category: about 65% for electrical, 25% industrial, and ONLY 10% used in transportation and other areas.IMO, $SCCO is in position to greatly benefit from a Nesbitt-like copper "Megatrend" to which I'd like to take advantage. It's also an alternative to picking the winners among EV makers.Perhaps most important to my thesis, while many companies produce copper, only a few presently have sufficient reserves to expand their copper production. SCCO has large reserves, viable expansion projects, and prioritizes copper.Southern Copper (SCCO), is presently the world's 5th largest copper producer, and is awarded a Wide Economic Moat by Morningstar, and has both mining and smelting operations. A major future competitive advantage is its ability to expand production to meet increased demand because it already has THE WORLD'S LARGEST COPPER RESERVES--68 million tons. Countries having the world's largest copper deposits are Chile and Peru (not China and Russia). Southern is also a refiner of gold, silver, zinc, lead and molybdenum--but almost 80% of its revenue is derived from the sale of copper.Thus I've entered a limit-buy order to initiate a position in $SCCO on the expectation that global economies turn positive, and its shares will likely grow faster than its competitors as EV demand accelerates into the mid-2030s, and beyond before leveling off after demand in the developing world finally catches up. While I wait, SCCO pays a near 10% dividend. BTW, a case can also be made for $BHP, which has nearly as much copper reserves, though copper production ranks 2nd to iron ore. Other candidates some may prefer: Copper is the largest contributor at $FCX; Copper is the 2nd largest contributor to coal at $TECK; and the 3rd largest contributor at $RIO. For myself, SCCO is preferred because it relies on copper, and thus increased demand will flow through to its bottom line. In addition, companies having an increased need of copper are likely to look for sources that both specialize in it, and have the reserves to meet decades of increased demand. That its dividend yield is the highest is another plus.[Were I an SA author, this would be the thesis for an article]
@erzs -- $SCCO meets the NYSE and SEC listing standards to be traded on the NYSE, where its average trading volume is 1.3 million shares, and a present market cap of $38.7 Billion, and enterprise value of $44 billion, and a Beta of 1.13. Since Oct 2018, S&P Global's credit rating of SCCO is BBB+ Stable.Shares closed Friday @$50.11(with a 52-wk range of $48.41-$79.32). SCCO is headquartered in Phoenix, Arizona.As to ownership, 89% of Southern Copper is owned by Mexican mining conglomerate Grupo México ($GMBXF), also an undervalued largecap value stock with a market value of $32 billion, and enterprise value of $35.5 billion.Are you suggesting GMBXF's majority ownership is an impediment to SDI investment?
@Lord TGO Investment Many analysts are really afraid of a major recession. In which case the price of copper can still drop much further...
@ACG88 no, rates going up, curtail business and consumer activity, leading to lower expected prices and lower demand, alleviating inflation. thats the goal.
@ACG88 look at the article you are commenting on, copper sinks to 17 month low, higher rates have led to lower commodity prices already, that will filter through the supply chains in time. Also see aluminum, lumber, oil all making moves down on the commodity price side in recent times.
FCX is goning to shut down several of its aging copper mines in Arizona because the new Resolution copper mine was approved to replace them.
Another company owns the Resolution mine. FCX will have to look for a new copper mine to develop. The Pebble , anyone?
Another company owns the Resolution mine. FCX will have to look for a new copper mine to develop. The Pebble , anyone?
Allowing copper to fall in a sustained way is yet another nail in the green energy coffin. A massive investment in new mines is needed to upgrade grids and replace internal combustion with electric vehicles.
@DagnyTaggart You don't need copper to conduct electricity, you can use weed. What is happening in the West reminds me of the fall of Rome. Idiot voters voting in idiot politicians who run on feelings and not critical thinking.
Time to buy. Not forgetting that this is precisely the kind of asset that outperforms in inflationary environments.
@Djreef1966 Says who? You think all the trillions printed worldwide in several countries will just magically go away? That is not how things work. Increasing rates does not fix it, even if it means causing a recession.
@Terra Brazilis Look at DJP www.investing.com/...Use your keyboard for something useful and look up some 3 month charts.Money flows from point to point. Follow the fund flows and you’ll make money.