Copper’s Wild and Volatile Ride

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Since late May, the copper market has been a rollercoaster ride. Threats of a strike at the world’s leading mine in Chile, Escondida, stoked fears that a shortage of the red metal could develop. In 2017, a work stoppage resulted in the loss of 156,000 metric tons of copper and a loss in revenue of approximately $1 bill for BHP, the operator of the mine. As the market waited for BHP’s response to union demands, the price of the red metal soared towards the high and critical technical resistance at the $3.3220 per pound level dating back to December 2017.

A bull market in copper started in early 2016 as most commodities prices were finding bottoms. The nonferrous metal that is often a barometer for the health of the global economy and a leader in the commodities asset class traded to a low of $1.9355 per pound, and never looked back. The path of least resistance for the price copper has been higher since early 2016 and the red metal has made a series of higher lows and higher highs for the past two and one-half years. During its journey to higher prices, copper never violated a critical technical support area on the charts making its ascent almost picture-perfect from a technical perspective.

On May 30, the price had dipped to a low of $3.01 per pound when news of the labor dispute in Chile caused a significant rally over seven trading sessions that took the price to a high of $3.3155 on June 7. 

Source: CQG

News that BHP entered into negotiations with the union representing workers at the Escondida mine caused the price to stall just 0.65 cents below the critical resistance level from late 2017 that could have launched a technical rally had it given way to buying pressure. Copper then proceeded to turn around, and over the next eleven trading sessions, its price declined to just 0.35 cents above its low on May 30, where all the action started. For those who did not look at the copper market between May 30 and June 22, it seemed like nothing happened to the price of the red metal. However, market participants that trade the red metal saw the price rally by over 10% and fall by almost that much over less than a one month period.

The negotiations between the union and BHP are nowhere near over, and there is still a potential for a strike in the months ahead. At the same time, there are bullish and bearish factors at play in the copper market when it comes to the price of the red metal. Economic growth is supportive of the price of the red metal, while the tariffs and trade issues facing the world are adding volatility to prices. The bull market in copper remains intact, but a stronger dollar over recent weeks weighs on the prices of many commodities given the inverse historical relationship between the U.S. currency and raw material prices. The bottom line is that the price volatility in the copper market since the end of May could continue to offer many trading opportunities in the metal that goes by the nickname “Doctor Copper” because it diagnoses the overall health and well-being of the global economy.




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