Copper futures (HG=F) has risen over 15% year to date thanks to AI demand and increased interest in renewable energy technologies.
LPL Financial chief technical strategist Adam Turnquist joins Catalysts to explain what copper prices indicate about the overall macroeconomic picture and the commodity’s potential future moves.
Turnquist reflects on copper’s trajectory: “Potentially we could see a drawdown maybe to the 2023 highs right around 425, 430. I think that would be a pretty good entry point if you’re looking to get long copper, especially to play this energy transition — you think about demand outpacing supply longer term. It takes a long time to get copper out of the ground … Whether it’s EVs or just the net zero emissions, there’s not enough copper to meet the demand in the current state. So I think longer term copper moves higher.”
For more expert insight and the latest market action, click here to watch this full episode of Catalysts.
This post was written by Nicholas Jacobino
Video Transcript
Copper having a record run this year up over 15% year to date due to A I driven demand as well as increased interest in renewable energy.
That rally is stalling over the past couple of months.
So for more on these moves and what they mean overall for the commodity, we are joined by Adam Turnquist, Ls Financial Chief Technical strategist.
Thanks so much for joining.
It’s really great to speak with you.
I do want to start just by taking a big step back on copper, right?
We know that we are in this higher for longer environment.
So we are obsessively looking at every single data point to suss out where we are at in the economy overall.
What can the copper prices tell us about the macro picture that the day to day economic data might be missing.
Hey, good morning.
Thanks for having me on.
I think when you look back in the longer term trend of copper, we’re getting this large breakout from a bottom formation that’s been forming.
And if you think about copper as a leading economic indicator, just its vast application use.
I think it’s a pretty good sign overall.
For global growth.
Despite some of that noise that you mentioned in the economic data, of course, what’s happening in China is a big contributing factor to to copper prices and overall demand as they try to revive their economy, there are signs of life emerging in the recovery there although a bit slower than I think most expected.
But I think there is when you look at the overall supply demand backdrop, it does look constructive on a longer term basis despite this latest pullback that we’re seeing off over bot levels.
So when do you think we’re going to see a rebound in that price action?
And what’s the ceiling here for you when it comes to copper prices?
I think we’re close to a potential spot where we’d have an inflection point.
The 50 day moving average has been tested.
Bulls seem to be stepping up and defending that level.
We’re trading right near those levels.
Potentially, we could see a drawdown maybe to the 2023 highs right around 4 25 4 30.
I think that would be a pretty good entry point if you’re looking to get long copper, especially to play this energy transition.
You think about demand outpacing supply longer term, it takes a long time to get copper out of the ground and we need to forecast some of the the whether it’s EVs or just the, the net zero emissions, there’s not enough copper to meet the demand in the current state.
So I think longer term copper moves higher and we could easily go back and retest these recent highs in pretty short order speculators have been piling into this.
This looks more like profit taking off over bot levels than anything else right now.
Well, Adam, another key driver of demand is of course artificial intelligence and the impact that that has in terms of needs for data centers.
The electricity grid is also key here.
We have a lot of guests come on and talk about the importance of finding the pick and shovel investment opportunities when it comes to A I is copper as pick and shovel as you can possibly get.
If you’re trying to play the A I trade, I think it’s a pretty good one.
I don’t know if it’s as close as you can get with some of the other pick and shovel moves at the company level.
But I think it’s a pretty good play in terms of that energy transition.
That’s, that goes beyond just A I.
And of course A I is a, a huge tailwind for copper.
When you think about the electric and the power grid, all of those are coming under massive changes over the next several years.
Industrials would be another spot as an A I play.
If you think about data centers, the manufacturing, the maintenance, that’s another sector that we like as well more at the equity level.
So you mentioned is that overall energy transition?
What are some other catalysts behind what’s fueling the demand here for copper?
Because I don’t think investors realize that copper is behind a lot of different things that we use every day in our lives.
Yeah, outside of electric vehicles, which of course, take way more copper.
If you just look at the construction industry, that’s the biggest um in terms of demand for copper that’s doing quite well as we’re building out infrastructure.
Of course, that’s, that’s been a big key move here that, that we like as well.
When you think about just the resorting theme and utilities are another one that obviously, um it would be another spot for, for the A I play in, in terms of uh the energy transition here.
I’m not going to ask you to talk about a specific company, but hypothetically, let’s say you’ve got the world’s biggest phone maker saying that they are going to utilize A I.
How much does a CFO of that company need to be worrying about the price of copper and the impact that could have as a potential head went on their balance sheet.
I don’t think it’s gonna be a major headwind when you think about the consumer, the elasticity of demand with, with smartphones right now.
Of course, it doesn’t, the price points have not been a major factor.
You can see that over the years as they’ve continued to increase when you’re talking about $2000 phones with demand.
It, it hasn’t been a big factor, but at the margin level, of course, as input prices go up, that could be a factor that could impact overall earnings.
And I want to go back to China because you did point out that the supply side there is a bit mixed.
Why is that not a concern for you in the long run?
Well, we’re watching the supply side there overall because right now it’s at levels typically you see um supplies in China elevate to really the 1st, 1st quarter of a part of the year and then they start to dwindle as factory activity increases.
We’re not seeing that quite yet.
But when you look at the futures curve of copper and this is why we’re a little bit um we’re, we’re discounting that a little bit is because we’re in backwardation, meaning front month or spot prices are trading above second or third month contracts that suggests there’s a tight copper market on a near term basis and supporting that I think bid into copper that we’re seeing.
Yeah, Adam and closing out the China’s uh impact in terms of commodities, we are seeing muted demand coming from Chinese fabricators as well.
So along with some of that profit taking, that could be a little bit of a temporary headwind for this commodity.
Adam thanks so much for joining us.
That was Adam Turnquist.
He is LP L Financials Chief technical strategist on all things.
Copper.
