Copper holds support despite weak China PMI

These latest developments have further reduced the focus on an overall structural long-term story of support, driven by rising demand for green transformation metals and mining companies facing rising cash costs driven by higher input prices due to higher diesel and labour costs, lower ore grades, rising regulatory costs and government intervention, and not least climate change causing disruptions from flooding to droughts. 

These concerns were discussed recently at a 121 Mining Investment event in Melbourne, as concerns grow that the world will not be able to produce enough copper, lithium, aluminum, and other metals vital for electrifying the world. In an update from the event, Reuters wrote that most speakers made the same point: there is not enough production to meet expected demand, there are not enough projects in the pipeline, and even when new mineral deposits are discovered, the regulatory and financial barriers to developing them take years to navigate.

Overall, however, given multiple uncertainties from recession risks, the direction of the US short-term rates, the dollar and not least developments in China, our expectations for higher industrial metal prices will likely not materialise until answers are found to some of these questions, potentially not until later this year or early next year. 

High Grade Copper has slumped back to a November low, but so far support is holding at $3.54 ahead of $3.50, a 50% retracement of the 2020 to 2022 rally. Hedge funds selling in recent weeks have seen the net position swing from a 20k contract long to a 16.4k contract short in the latest reporting week to May 23. At this point, a break back above an area of resistance around $3.80 to $3.82 is the minimum requirement for a change in sentiment to take hold.