Copper Is Roaring Higher As Supply Disruptions Buoy Prices

 | Feb 13, 2017 15:09

Originally published by AxiTrader h2 Key Takeaway/h2

After spending a large part of 2016 languishing on a long term trend line near $2 a pound copper surged to a high around $2.75 in the last quarter of 2016.

Since then it has consolidated in a 25 cent range.

But supply concerns relating to the strike at Escondida, the world's biggest copper mine, and with Freeport McMoran's licence in Indonesia saw copper break higher on Friday. The technicals suggest a run toward $3 a pound could be in the offing as a result of this break.

h2 What You Need To Know/h2

Copper was more than 4% higher in London and New York Friday after the supply concerns that had been the focus of traders were crystallised once BHP Billiton Ltd (AX:BHP) declared force majeure on its contractual supply obligations. It was a result of the strike at the mine which began a couple of days before.

As a result copper in London rose above $6000 a tonne while US copper climbed to $2.76 a pound. That's the highest level since June 2015.

The supply disruption came at a time when Chinese trade gave a strong indication that the global economy is in good health. That would normally have been good for copper on its own. But throw in a force majeure and worries about production from Freeport McMoran in Indonesia and the cumulative effect has seen copper prices break out.

How long the supply disruption last is something we can't know. But the charts can give a guide to where prices might head in the near term.

Looking at the daily charts it is clear that copper continued to find support along trendline from the December low around $2.44 a pound. recently though it had been unable to break up and through the late 2016 high.

The fact that $2.44 low point of the consolidation was between the 38.2% and 50% retracement levels of the previous rally sets up one of my favourite chart patterns now that the high has been broken.