Until recently Copper had been one of the lowest performing commodities in the past two years, having reached an all-time low at the beginning of 2016. However, toward the end of 2016 copper prices, alongside gold, and silver received a considerable facelift, spiking just under the heels of President Trump’s proposed half a trillion-dollar infrastructure plan. In addition, projections looking to Chinese imports of copper to increase over the Trump presidency, have served to raise optimism within the market and propel copper futures to around $2.70.
Andrew Col, Metal Bulletin Research’s principal base metals analyst and editor of the Base Metals Forecaster, said earlier this month it was evident that investors were coming back to commodities: “Copper itself looks like it could be one of the top performers. It was undervalued for much of 2016, weighed down by perceptions of a weak China and rising supply. Since both of those views have swung around completely, there may still be some catching up to do in terms of investors who had been underweight copper moving to reposition to a more bullish stance, by increasing allocations and building long positions.”
Even Goldman Sachs, who traditionally has expressed pessimistic forecasts for copper in the short-term, has changed its tone to a more positive one, believing an increased demand for copper in China will support a “bullish” environment for the metal. Goldman predicts prices will hit $5,800, $6,200 and $5,600 per metric ton over the next 3-months, 6-months and 12-month respectively.
However, these prices are deeply rooted in assumption and selective bias rather than substantiated evidence. Investors see proposals set forth by the Trump administration, such as talks to decrease the corporate tax rate and an increase infrastructure spending as signs of economic growth. This is evident through the strong appreciation seen in the stock and futures market. But how long can this sustainably last?
Fundamentally speaking, the rising demand for copper in emerging markets as well as infrastructure both domestic and international, will be able to create a sustainable rally for the price of copper. But for investor expectations of the market to persist, Trump will have to start delivering on some of his promises for economic stimulus, either by decreasing the tax rate or actually infusing stimulus money into construction.
These promises might be rather difficult, however, considering a splintered Democratic party that refuses to work with the president, even going as far as to motion talks of impeachment. This, in turn, could prove troublesome for the president’s agenda, as congressional gridlock may prove hazardous to achieving major elements of his “Make America Great Again,” theme, that being lower taxes and more infrastructure spending
In spite of this, I believe copper trends are poised to continue their rally, on the backs of stronger macro fundamentals that point an increased demand for the commodity. Furthermore, the Trump sentiment shall serve to bolster the existing market trend, rather than leading it forward.
Freeport-McMoRan (NYSE: FCX): Owing to clear positive catalysts for commodity prices (mainly copper) that relate to Freeport’s financial performance, prevailing sentiment within the world economy and talks of added infrastructure spending by the Trump administration, Freeport is positively positioned to reap benefits in the long run.
BHP Billiton (ASX: BHP): Already the world’s second-biggest listed copper miner, increased its annual exploration spending by 29% this year, allocating nearly all its $900 million budget to finding new copper and oil deposits. Given this, BHP is positioned to see an increase in share price within a 1 to 2-yearspan, so long as copper prices follow the existing trend.