The price of copper is crashing. With a decline of some 10 pct in two weeks time it is getting ‘nasty’. Is the end or the start of the copper price crash?
First, let’s review our thinking when we did our Copper Price Forecast For 2018 last year. In it, we said: “The pattern we see on copper’s chart which is the basis for our copper price forecast 2018: a wide gap between $3 and $4. Yes, correct, we believe that copper will rise to $4 in 2018, provided of course that $3 holds strong.”
This gap between $3 and $4 has only partially filled. After 2 important but failed attempts to clear the multi-year highs at $3.30 the price of copper headed south.
Where does copper go from here?
It is very clear that the price of copper is near major support by just looking at the daily chart on 2 years. The $2.75 to $2.85 area is essentially the breakout level. We wrote about the importance of this already more than a year ago in Copper Price: Waiting For The Ultimate Confirmation Of A New Bull Market. This former resistance is now becoming support, which only increases the importance of this price level.
If, and that’s a big IF, the price of copper goes lower from here, and structurally breaks below $2.75 (i.e., closes below this price level for at least 5 consecutive days) then it will become very nasty for copper. The price of copper will really crash in this situation.
Will it become that bad? We do not think so. A crash in the commodities space is not in the cards right now. Yes, emerging markets, highly correlated to commodities, have been weak in recent months. The US Dollar has shown strength in the first part of 2018. But there are not signs that the US Dollar is about to rise so strongly that it will crush commodities and emerging markets. Never say never though.
We believe copper will find support at current levels, ultimately fall slightly below the $2.75 towards $2.60. Other than that, a sideways trading range might be in the cards for the remainder of this year. Copper stocks are not a buy at current price levels but should be considered in some 3 to 6 months, smart investors but copper stocks on their medium term watchlist.