Is Copper the new Gold?

Copper is on a tear and what that means for correlated markets (hint: China).

Copper has staged a 40% rally since February after spending nearly two years doing absolutely nothing. This is setting up to be the best performing run since 2010 but what is driving the rally? The usual suspects swirling around the internet include EV/battery demand, processors/data center demand, all of which use large amounts of copper. Copper is plentiful on this planet however mining productivity has declined all while costs associated with extracting copper have gone up, these are important factors alone. However one of my favorites is this, China. I've talked about China more than enough in the past posts and videos but the fact is China makes up around 50% of copper demand globally. Chinese tech, AI and consumer stocks have suffered for the past few years, everyone has been hands off with China. As rallies gather momentum there it's no surprise to see copper leading that move. Chinese stocks, consumers and the overall economy has lagged what most people hoped, many expected a rally long before now but late vs never is always a good option in my book.

Here are a few charts to keep in mind:

YTD prices on copper futures, Freeport (FCX) and Rio Tinto (RIO)

The more interesting chart comes copper prices vs FXI, China's large cap ETF

China vs copper prices

The above chart shows how correlated China and copper prices have been over the years with copper leading the most recent rally. This speaks to a few things in my mind,

  1. The China rally is currently early stage
  2. Copper does have some headwind as it pushes against all time highs but momentum is on the right side.

We will keep an eye on things closely from here, more details to come.

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