Gabriel Andre (GA): Actually copper was among the biggest losers of the commodities sell-off that started at mid-2008. Copper prices have indeed declined by roughly 65% since last July.
As you may know, worldwide copper production is about 18 million tonnes per year. This base metal is used in the electrical and electronic industries, but also in the construction, engineering and transports areas. For instance, 50 kg of copper is needed for one single car.
Kris Sayce (KS): If it’s such an important commodity why has the price fallen so much?
GA: The fact is that the offer became largely bigger than the demand those past 6 months. Inventories and stockpiles rose therefore prices sharply switched trend. After several years of bullish trend, they peaked and fell sharply to their levels of 2005.
KS: And why has the price fallen so quickly?
GA: As soon as prices broke below the support line (points A, B, C and D) and failed to jump back above (point E, the support line became immediately a new resistance)…
It fell massively without any intermediary technical support to back the buyers.
Look first at the long-term configuration: the price action retraced in just 6 months what he had climbed previously in 4 years. The correction has been fast and powerful as both the industrial demand and the investment speculation cut their interests and positions on this market. From a high point posted at 8,900 US dollars per tonne last April (point F), the price is currently 3,210 USD/tonne, and posted a recent low at 2,850 USD in December.
KS: The charts do look pretty scary. Is there any upside for copper ‘bulls’?
GA: Prices are unlikely to rebound significantly as long as they don’t test the main support line around 2,600 USD. This level was a resistance in 1997 (despite a false break on the upside) and became a new low in 2004 (point G) after that prices started to rise in 2003.
The second chart focuses on the bullish trend finished last year and on the recent crush. Look at the moving averages crossover. The red line is the 50-day moving average (MA), the green one is the 25-day MA. If the 25-day MA crossovers the 50-day one, it would be a bullish signal on the near-term. The Fibonacci ratios (between points F and H) indicated would then act as the next targets and objectives for the price action.
However the current configuration remains bearish and a new decline towards the support of 2,600 is the most probable option.
Can I go now?
KS: Yes.