Copper Market Caught Between Opposing Forces

After January’s frenzied rush to record highs, the copper market is now nervously treading water, bobbing to the ever-changing news flow around the Iran crisis.

·      The closure of the Strait of Hormuz is both bullish and bearish for the copper price. The Gulf is a major exporter of sulphur and copper miners using leaching technology need a lot of sulphuric acid. Solvent extraction and electrowinning accounts for a quarter of global refined metal output.

·      But the broader economic fallout from higher energy prices threatens a slowdown in manufacturing activity and therefore copper demand. It’s a risk that grows with each day the Strait remains closed. The Iran crisis accentuates the confused and confusing play of opposing forces in the copper price.

·      Supply is problematic. So too is demand. At $13,000 per metric ton, London Metal Exchange three-month copper is pricing scarcity. Yet exchange warehouses are full of metal and time-spreads are in deep contango, signalling abundance.

·      So, copper’s fundamental outlook depends on which deteriorates faster – supply or demand.