Copper Breaking Out

Copper prices have broken out to their highest levels since August 2023 today. The move comes on the back of news that top Chinese copper smelters will slash production across loss-making sites in a bid to shore up the market against the tightness in raw materials. A surge in global smelting capacity along with tightness in the iron ore market has seen many key sites suffering a loss of income over the last year. Along with the weakness in the Chinese economy and the absence of any sweeping fiscal support from the PBOC, the demand outlook for copper has deteriorated recently.

Bullish Momentum Building

Despite the recent weakening in the demand outlook, Copper futures have rebounded almost 10% off the YTD lows and are now close to testing the July 2023 highs. Broad expectations for Fed easing this year have helped fuel the recovery in part. With traders anticipating a Fed rate cut by July, the outlook is for a weaker Dollar later in the year, helping revive demand for copper here.

Bearish Risks

While the market is currently pushing higher, there are still concerns over the macro-backdrop given the economic weakness in China and the tightness in raw materials supply. Near-term too, risks that the Fed further pushes out expected easing actions might see a restrengthening of the US Dollar which will also create headwinds for copper bulls.

Technical Views

Copper

The rally in copper prices has seen the market breaking out above the bear trend line from last year’s highs and above the 3.9410 level. Price is now fast approaching a test of the August 2023 highs. With momentum studies bullish the focus is on a break higher here with 4.1585 the next target for bulls.