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October 2023: Diving Deep into Latest Market Dynamics As Copper Surges
3 months ago
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October 2023: Diving Deep into Latest Market Dynamics As Copper Surges

Summary
Delve into the dynamics behind the recent surge in copper prices, driven by mine disruptions and the weakening US Dollar. As copper hovers around $8450-70, technical analysis outlines potential scenarios for bulls and sellers.

In the dynamic world of commodities, the recent surge in copper prices has sent shockwaves through the market, grabbing the attention of investors and analysts alike. This surge, reaching above $8450, marks a significant milestone for copper bulls who weathered a record accumulation of bear positions in October 2023. The driving forces behind this surge are multifaceted, combining declining operations in major mines and a weakening US Dollar.

 Mining Turbulence: Cobre Panama & Las Bambas

One of the primary catalysts for the surge in copper prices is the operational turmoil in two major mines, Cobre Panama and Las Bambas. These mines, accounting for approximately 2% of the world’s copper production, are facing challenges such as port blockades and worker strikes. The resultant decline in production has created a supply-demand imbalance, putting upward pressure on copper prices.

 US Dollar’s Influence on Prices 

Simultaneously, the weakening of the US Dollar to its lowest point since September 2023 has further fuelled the rally in copper prices. The inverse relationship between the dollar and commodities is a well-established phenomenon, and in this case, the depreciating dollar has made copper more attractive to global buyers. This, combined with three-digit Asian premiums influenced by seasonality, has contributed to the current price surge.

 Breaking Down Numbers 

As copper approaches the bull-bear-dividing line, represented by its 200-day moving average and an 11-month-old downtrend line, technical analysis becomes crucial.

  • Bulls are gaining momentum as prices breach $8450, and a convincing rise above the $8450-70 range could propel copper towards the $8700-8750 range.
  • On the flip side, a failure to sustain higher levels might see a retracement towards $8200-8250 as sellers re-enter the market.

Other Base Metals Take Backseat

Interestingly, while copper takes the spotlight, other base metals seem to be taking a backseat in this market drama.

  • Aluminium’s Intriguing Spike: Intraday spikes in aluminium attracted sellers as the metal retraced to the previous day’s close, highlighting the unpredictability within the base metals sector.
  •  Zinc’s Technical Selling: Zinc experienced a slip driven by technical selling, aligning with earlier predictions. Inventory inflows also played a role in dampening zinc prices.
  • Lead’s Bear Rally: Lead’s bear rally, influenced by warehousing strategies, paused near the top of its price channel. However, the metal is poised for potential volatility in the coming month due to significant short positions.
  • Nickel’s Steady Descent: Nickel, in contrast, continues its steady decline, seemingly impervious to external factors. This suggests a resilient trend both fundamentally and technically.
  • Tin’s Stagnation: Tin prices, amid the copper surge, remain stagnant at around $25,000, showcasing a divergence in market dynamics among different base metals.

 Scepticism Amidst Surges 

While the surge in metal prices, including copper, has sparked optimism in some quarters, a note of scepticism prevails. Several observations point towards a cautious approach to labelling this surge as the onset of a sustained bull market:

  • Quick Reversals: In recent weeks, the prices of many metals experienced sudden spikes only to swiftly reverse lower after encountering critical resistance levels.
  • Aluminium’s Example: Aluminium, for instance, rose to $2295, touching its 200-day moving average and trendline resistance on November 6th, only to witness a subsequent reversal.
  • Zinc’s Retreat: Zinc spiked to $2667, hitting its 200-day moving average and trendline resistance on November 15th. Prices started falling the next day, currently standing 4.5% lower.
  • Lead’s Volatility: Lead surged to $2309, reaching the top of its trading range, prompted by warrant cancellations. Yet, the metal reversed its gains shortly after. 

Looking Ahead: Dollar’s Role in Base Metal Rally

The weakened US Dollar serves as a significant catalyst for the ongoing bear rally in base metals, influencing not only copper but also various other markets. With a more than 4% drop in three weeks, the dollar’s retreat from its seven-week gains has set the stage for a broader market evaluation. Traders are keenly awaiting the minutes of the Federal Reserve meeting and US data later this week to validate or challenge the hypothesis of a US economic slowdown.

OFB’s Insight

While copper’s surge is undoubtedly a focal point in the current market narrative, caution is warranted. The interplay of various factors, from mine disruptions to currency fluctuations, creates a nuanced environment. Investors and traders must carefully monitor the evolving situation, especially as copper hovers around the $8450-70 region.

 

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