Copper and equities

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By :  ,  Financial Analyst

Dr Copper - the new Lithium for Electric cars

The price of copper is considered to be the barometer of global manufacturing health - with the current trade negotiations between the US and China, global growth is at risk of slowing on this uncertainty, but traders and investors must be aware of the forces behind the copper price other than the current trade spat.

Electric Cars.

While conventional cars contain about 9 to 22 kilograms of copper, a hybrid electric vehicle typically contains 85 pounds of copper, while the plug-in hybrid electric vehicle uses about 59 kilograms of copper. And finally the battery electric vehicles typically contain more than 81 kilograms of copper.

The growing use of copper in electric vehicles can only underpin the price of the commodity, unlike Lithium being in abundant supply globally, Copper is currently limited to current mining and limited exploration and expansion.
Copper producers by production output has Codelco at the top, followed by Freeport McMoRan in second place and BHP comes in third.

Copper and equities
 (This chart represents 1,000 metric tonnes)

Research analysts focused on future transport requirements predict the increase in copper demand for electric cars and buses will move from 185,000 tonnes currently in 2018 to 1.74 million tonnes in 2027.

This represents a 9 fold increase in copper requirements for electric vehicles.  

Going forward, behind Chiles’ Escondida mine part owned by BHP and the largest copper mine in the world, Australia has the second largest reserves of Copper, also controlled by BHP.
Currently Australian copper reserves are located at the Olympic dam project and Mt Isa in Queensland.

Trade tension really got underway mid last year - the weekly chart of Copper shows the resistance level of $3.32 holding from January to June 2018.
The following retracement lower has found support at $2.55. 
The relative strength Indicator showed bearish divergence prior to the lead in to resistance and has declined below the key 50 level into the lows set during September 2018.
There are some important observations to be made on this chart:

  • The support level was retested recently in December 2018, this low went a few points lower than the August low.
  • The immediate retracement into higher prices shows a lack of interest from the sellers.
  • Resistance at $2.85 is currently being retested, the important observation here is the Relative strength indicator has crossed the key 50 level, this is an important level to hold in the coming weeks.

Copper and equities

BHP the world’s second largest copper producer.

Recently BHP sold the US based shale Oil assets and paid a special dividend to shareholders with the proceeds.
The weekly chart of BHP shows this special dividend being quickly recovered with new equity highs last week.
The current breakout over resistance shown at $35.40 is the third price movement to this level during this 12 month consolidation.
Importantly during this consolidation an earlier retest of the trend line (3) confirmed underlying technical support for the price.

Supporting the higher price scenario is the Relative strength Indicator moving strongly over the key 50 level in line with this current price breakout.

Copper and equities

In summary, contrary to popular media opinion, Lithium may not be the trade of the year but Copper the limited supply commodity may propel the resource sector higher in the coming years.
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