Higher copper prices have been one of the factors fueling the rallies in companies like Freeport-McMoRan (FCX), Glencore (GLNCY), and Teck Resources (TCK). It’s important to note that we aren’t talking about a modest recovery. Copper jumped from a closing low of $4,311 per metric ton on January 15 to a high of $5,103 on March 18. Let’s see what factors helped copper recoup its losses.
What’s driving copper’s rally?
- Stable energy prices – Energy prices have been a key driver of commodity prices over the last few quarters. Energy prices recovered sharply from their January lows. Copper also piggybacked energy and moved to higher price levels.
- Encouraging data from China – The Chinese real estate slowdown is a big challenge for miners like Rio Tinto (RIO) and BHP Billiton (BHP). However, China’s construction indicators have been strong this year. This fueled a rally in commodities like iron ore, steel, and copper.
- Chinese copper imports – China’s copper concentrate imports were the second-highest imports ever in February. The imports rose more than 92% year-over-year. The steep rise in China’s February copper imports took many investors by surprise. Generally, February is a slow month for China’s copper imports due to the Lunar New Year holiday.
- Dollar’s weakness – The US dollar weakened this year as rate hike fears faded away. A weaker dollar is generally positive for commodities (GCC).
- Short covering – As copper prices started to rise due to the above-mentioned factors, shorts were left with little option but to cover their positions. This also provided buying support for copper prices.
So, what changed for copper in the last couple of weeks? Let’s explore this in the next part of the series.