Photographer: Chris Ratcliffe/Bloomberg

Four Charts Show Why Copper's Comeback Could Have Staying Power

  • Backwardation, lower inventory, technical gauges offer support
  • On other hand, biggest producer sees copper glut persisting

Copper has been staging a comeback, erasing declines earlier in the year. The metal gained 2.9 percent to $4,695 a metric ton in February, the biggest monthly leap since April 2015.

Following are market indicators that suggest further gains:

Futures Contracts

The metal for immediate delivery is more expensive than the benchmark contract for delivery in three months. That market structure, known as backwardation, usually signals limited supplies.

Glencore Plc, a company whose mines and refineries make it the biggest copper supplier, said on Tuesday its order book was strong, while Bank of America Merrill Lynch last week forecast the metal may reach $5,000 a ton by the fourth quarter.

Codelco, the largest producer of the metal, on the other hand expects a surplus to persist this year and next. Chairman Oscar Landerretche on Tuesday dismissed suggestions that recent price gains would probably endure.

Warehouse Inventories

Stockpiles in warehouses tracked by the London Metal Exchange, the biggest metals bourse, have been falling. They declined this week for a ninth straight day to the lowest level in more than 13 months.

"The copper market is fundamentally still relatively tight," Leon Westgate, an analyst at ICBC Standard Bank Plc, said by e-mail. "Stockpiles are definitely shrinking."

Bullish Bets

Falling inventory levels may be convincing more traders to buy copper. Money managers doubled bullish bets last week on the LME, according to the latest bourse data.

Busting Averages

Copper closed at its 100-day moving average of $4,716 a ton on Tuesday. A close above that level is a bullish signal to traders who study technical charts.

Some traders holding bearish bets in copper were forced to purchase the metal to close out their wagers after the key technical measure was breached, according to Keith Wildie, a partner at London-based brokerage Vantage Capital Markets.

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