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Freeport Investors: Is a Bubble Building in Copper Prices?

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Nov. 29 2016, Published 10:23 a.m. ET

Copper prices

The US is gearing up for Donald Trump to become its 45th president. Although Trump’s victory sparked an initial selling spree on Wall Street, markets recovered handsomely. Commodity prices also rallied after the presidential election results.

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Copper reversed its losing streak

Copper has been on a losing streak for the past five years. After the recent US election results, commodities including copper started a steep rally. Copper finally broke the $5,000 per metric ton level—decisively this time. Copper producers including Freeport-McMoRan (FCX) and Southern Copper (SCCO) were trading in a narrow price channel for the last few months. They rallied after the election results. The upward price action isn’t limited to copper producers. We saw a broader rally in metal and mining shares (XLB). Diversified miners like Rio Tinto (RIO) and BHP Billiton (BHP) saw renewed buying interest after almost five years of depressed commodity prices.

Series overview

In this series, we’ll analyze what’s driving the current uptrend in copper prices. We’ll also look at the opinions of leading brokerages and producers on copper’s outlook. Copper, like other commodities, is driven by demand-supply dynamics. Although sentimental factors can have a short-term bearing on commodity prices, in the medium to long term, demand-supply factors are the key drivers of commodity prices. Later in the series, we’ll also look at copper’s demand-supply equation. It could help us understand whether a bubble is building in copper or if copper’s spike is backed by fundamentals.

Let’s start by analyzing what different brokerages have to say about copper’s recent price action.

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