Daily Brief - From Mines to Market
TLDR: Copper prices have surged to an all-time high, surpassing $11,000 a ton, driven by financial investors anticipating supply shortages.
Banks, miners, and funds are optimistic about copper’s long-term prospects, with tight supply and growing demand in sectors like EVs, renewable energy and AI data centers pushing prices higher. A short squeeze on the New York futures market further accelerated the rally, making it difficult to predict a peak.
Despite high prices, physical demand remains weak, particularly in China, where inventories are high, and output has been cut. Nonetheless, investors continue to flock to Western exchanges, fueling the disconnect between market prices and actual demand.
Copper's rise has triggered bullish options, adding momentum as dealers buy futures to cover positions. LME copper was up 2.2% to $10,904 a ton after hitting a peak of $11,104.50, with prices up over 25% this year.
Shortfalls at major mines and low smelter treatment fees indicate tighter supplies, potentially leading to production cuts. The short squeeze on Comex has diverted copper to the US, reducing availability elsewhere and impacting global inventory levels.
Scenario Spotlight: When Copper prices rise 33%
History shows that in the past 23 episodes when Copper prices rose 33% in 6 months, futures on median saw further upside, particularly over a 3 month horizon.
Market Movers: Reaction from Copper Stocks
Here is the historical 1 month response from Copper stocks when futures rise 33%:
Earnings Spotlight: Target reports tomorrow
Analysts expect Target to report $2.05 in EPS on $24.5 billion in revenue, with low single-digit same-store sales declines but some sequential improvement. Target's stock has rallied after recent quarterly reports, suggesting cautious optimism is warranted.
Walmart's recent earnings success was propelled by its integration of technology and a strong focus on groceries, resulting in a 5.8% revenue increase and a 21% surge in digital sales. In contrast, Target, which also emphasizes general merchandise, experienced low single-digit declines due to its focus on discretionary items.