Copper Is Telling Us Something

I have been banging the drum for copper for some time, but it is becoming increasingly difficult to ignore.

Gold has the glamour, but many, including veteran investor Rick Rule, now see the greater opportunity in copper.

In summer 2024, I highlighted three copper companies Amerigo Resources (ARG.TO) at around C$1.75 and Arizona Sonoran Copper (ASCU.TO) at C$1.36 and QCCU (QCCU.V) at 12c . Amerigo and Arizona Sonora both hit C$8 on Monday meaning gains of ~350% and ~500%. QCCU, on the other hand, is still at 12c. You can’t win them all.Back in May we noted that things were getting a little hot. The metal had just hit fresh highs; there was a plethora of investment bank supercycle notes and social media was full of predictions about imminent shortages.

The long-term story is intact but don’t chase it, we suggested. Copper tends to be weaker over the summer and some consolidation could give you a better buying opportunity.

We got a good opportunity in June but it did not last long, and here we are three months on with copper at ~$6.50/lb a couple of per cent below where we were in May.

It doesn’t take a genius to work out which way the trend is going in that particular chart.

The summer lull has been more of a pause than anything else.

Meanwhile, beneath the surface, the fundamental copper story is getting stronger.

Copper’s problem is not demand. It is supply.

We covered the demand side extensively in May. AI needs copper. Data centres need it. Power grids need it. Electric vehicles, rearmament, reindustrialistation, India - they all need copper.

This is not the usual China story by the way. If anythign China demand is lacklustre. Its imports of unwrought copper fell 11.5% year-on-year in July and industrial production there has been slowing.

But, as RBC notes, the LME copper market had moved into its steepest backwardation since the 2021 squeeze. In other words, buyers are paying substantially more for copper now than for delivery later. That is a classic physical tightness indicator.