A coming correction?

In his Aug. 9 edition of “The Copper Journal,” John Gross of JE Gross & Co. Inc., Huntington, New York, writes that while supply and demand drive markets in the long term, other considerations exert their influence in the short term.

“Today, rising inventories of copper held in exchange warehouses, coupled with the global market in a surplus position, would lead us to believe that prices should trend lower,” he says. “Indeed, the spot price of copper on Comex has fallen $1.14 from $5.12 on May 21st to $3.98 on Friday [Aug. 9].”

He shares a set of charts illustrating copper’s daily spot closing price and weekly closing price compared with the stochastics reading, which measures the relationship between the metal’s closing price and its price over a set time range, indicating it offers a guide for the market being overbought or oversold.

“As of [Aug. 9], the stochastics have fallen to a very low point, suggesting that the market is extremely oversold and is due for a correction.”

“For my first 34 years in this business, it was always a net-30 business. But over the last four or five years, we’ve seen a real movement in that credit term.” – Brian Shine of Manitoba Corp.

By the next week, however, the stochastics increased slightly as copper advanced 15 cents per pound, suggesting a further advance in price is possible, Gross says.

In his Aug. 19 commentary, Edward Meir of London-based Marex also notes the upward trend in metals pricing as of the start of that week, with copper and aluminum each increasing nearly 3 percent the previous week despite news that should have been seen as bearish.

While some have speculated a new floor price has been established for copper, Brian Shine of Manitoba Corp., Lancaster, New York, says while this could be true in the short term, “I don’t think that’s real.” He adds that situations could cause the price to go lower, citing COVID-19 as one example that could not have been predicted.

While Shine says the green energy movement and growth in artificial intelligence-related computing are reasons to be bullish about copper in the long term, the same cannot be said about the physical scrap market, which he describes as “stable, quiet and uneventful” so far this summer.

Early August brought more buying activity as mills replenished their scrap inventories, Shine says, though he is not sure it will be long-lived.

The Federal Reserve has hinted a rate cut could be coming in September, which could help alleviate pressure on scrap suppliers, which have seen mills’ payment terms extended in recent years.

“For my first 34 years in this business, it was always a net-30 business,” Shine says. “But over the last four or five years, we’ve seen a real movement in that credit term. … Many of the consumers in the copper market have moved out to 45, 60, 75 even 90 days, and that’s a real problem in copper.”

But, more meaningfully, he says, an interest rate cut would show the mills it’s time to start buying, and that would move throughout the supply chain.

Shine says copper scrap is available though not plentiful as of August. Despite that, “We’ve been turning people away. We hate doing that, but carrying too much inventory doesn’t make sense.”