Copper, Commodities, Metals, Inflation, Federal Reserve – Talking Points
- Omicron fears continue to rout risk assets as commodities continue to fall
- Global stockpiles remain low, potentially preventing sharp moves lower
Copper prices retreated by more than 1% on Wednesday as fears of a virus resurgence routed risk assets. The emergence of the Omicron variant has hit commodities markets particularly hard, as market participants scramble to price in a winter season of weakened growth and demand. Copper prices had already been under pressure due to the issues facing China's property sector. Of note, the CEO of the world's largest copper producer, Codelco, warned of lower prices through 2024. Despite improving conditions in China, export demand may be hindered as Omicron could force countries to revisit stricter border policies.
Despite equity markets and other commodities facing significant pressure from Omicron-related headwinds, copper prices continue to be supported by low global stockpiles. Stockpiles at the London Mercantile Exchange have fallen to their lowest levels since early March, while warehouses in Shanghai continue to report inventories near 12 year lows. It remains to be seen whether the rebound in Chinese factory activity will be sustained through December, as input prices fall and power rationing around the country eases. A rekindling of demand across China could support prices throughout December and into early 2022.
Copper Futures Daily Chart (Front Month, COMEX)
Chart created with TradingView
Recent headwinds saw front-month copper futures fall through key support at $4.28. This was a level that has often been a pivot point for trends, with the last break in early November retracing the very next day. While price appears vulnerable given the uncertain nature of the Omicron variant, limited global supply could continue to buoy prices. Should price fail to hold the 0.5 Fibonacci retracement at $4.1915, a test of the August low below $4.000 could be on the cards. Copper continues to look vulnerable as the chart appears to be rolling over and the fundamental construct also looks to be weakening. However, a blend of key support and limited supply could reignite copper to explore higher prices.
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--- Written by Brendan Fagan, Intern
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