Futures Analysis – 6 July
Copper
- News update
- Macro analysis
Positives: Copper supply has been on a constant downtrend MoM, as top copper-producing country Chile reports a monthly decline in copper output. This is a result of project wobbles, mini-specific setbacks and plant maintenance that have affected copper production. Additionally, the increase in demand for EVs and electrical products worldwide has also increased the demand for copper. Lotte Chemical also recently announced that the company plans to invest US$2.3bn in copper foil for EV batteries. With the demand for copper outpacing its supply, copper price is expected to recover and rise in the near term.
Negatives: China recently reported slowing activities in both its industrial and manufacturing sectors due to sliding inventories and weakened domestic and overseas demand. The strengthening USD will make dollar-priced commodities more expensive for holders of other currencies. Furthermore, with China’s economic growth slowdown alongside its weakening RMB, there is uncertainty facing copper prices. Moreover, Maike Group, China’s previous top copper buyer, previously faced a liquidity crisis and struggled to pay suppliers causing thousands of tonnes of copper to be stranded in warehouses due to Covid-19 and is now facing a lawsuit for unpaid debt, contributing to a decline in copper demand. Rio Tinto also recently announced to invest in strengthening the copper supply in the US by increasing production from underground mining and improving the health of key assets. This would increase the supply of copper production in the longer term.
Catalysts：June US nonfarm payroll. Market consensus of job creations is 255,000 in June, compared to 339,000 in May. The expected unemployment rate in June is 3.6%, compared to 3.7% in May. If the US labour market continues to be strong, beating market expectations, copper will see an upward bounce, vice versa.
- Technical analysis
| Name | Copper Future Sep23 Comdity (HGU3 COMB Comdty) |
| Expiry | Sep 2023 |
| Contract size | 25,000 lb |
| Tick size | 0.05 |
| Tick value | $12.5 |
| BUY Entry – 370 Target – 390 Stop Loss – 360 |
| Support levels: 374.8 |
| Resistance levels: 379.6 and 381.5 |
(Source: Bloomberg)
- Forward curve structure (3M spread)
(Source: Bloomberg)
