Dr. Copper is surging higher this week.
The commodity surged above $9,340 per ton on Thursday, hitting its highest level in nearly a decade as investors bet supply tightness will increase as the world recovers from the coronavirus pandemic.
“The list of bullish factors for copper is extremely long,” said Max Layton, head of EMEA commodities research at Citigroup. “A lot of the most bullish developments are really going to play out in the next few months, and therefore we think it’s going to be sooner rather than later that it gets to $10,000.”
Currently, Copper is trading just 8% below its all-time high of $10,190 set in 2011, having doubled since the brand market decline last March as the COVID-19 pandemic shut the world down.
Concord Resources CEO Mark Hansen said though that current prices, even after the massive run-up in the metal, seem “far too low” if governments around the world fulfill their pledges for green infrastructure and electric vehicle incentives.
“People need to be aware of the potential for a changing paradigm in terms of pricing,” Hansen said. “In copper, the market is not yet pricing in the addition of potentially millions of new tons of copper demand over the coming decade.”
Hansen argues that if governments follow through with plans for greener economies, copper would need to climb to a level that will prompt demand substitutions and encourage minters to invest in new production.
“It simply doesn’t happen at $10,000,” Hansen said. “I would predict that if all those circumstances come true, we really need to see $12,000 copper to bring he market into balance and properly incentivize new production.”
But before the world sees copper at $12,000 per ton, Miller Tabak chief market strategist Matt Maley warns the near-term picture may not be so rosy.
“On a short-term basis, you want to let them come to you,” Maley said. “It’s had this huge rally, and it’s getting quite overbought on a near-term basis.”
Pointing to the relative strength index on copper’s chart, Maley noted that the RSI has moved above 70, which typically indicates overbought conditions.
“I think, therefore, it’s getting ripe for a pullback, which would be normal and healthy,” Maley said. “Another concern is the dollar, which is a very crowded trade on the short side. If that rallies at all here in the near term, that could be another excuse for commodities to come in.”
Maley, however, is bullish long-term on copper and says any pullback is an opportunity.
“I think any pullback will provide a great buying opportunity,” Maley said. “Near term, you don’t want to be too aggressive here.”