Monday, February 20, 2017 5:51:00 PM
Macro InvestingFollow(824 followers)
Long/short equity, event-driven, mutual fund manager, special situations
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Summary
Copper has risen by 28 percent in the last 12 months.
The majority of these gains came following Trump’s election victory.
We expect an announcement of huge infrastructure plans will result in a further boost to prices.
Recent issues at major copper mines have supported prices.
Chinese data points to increasing demand for base metals, further supporting current prices.
Forget favorites like gold and silver, in the last 12 months, one of the best performing metals has been copper (NYSEARCA:JJT). Thanks partly to a huge rally in November, since this time last year, the high-grade spot price has risen by a massive 28 percent to $2.70 according to Comex. But we don't believe the rally is over for the base metal, which could be great news for the copper bulls.
Why did the copper price rally in November?
As you can see on the chart below, the prospect of the much-hyped trillion-dollar infrastructure plan and pro-growth policies by President Trump was enough to send base metals such as copper, zinc, and lead rocketing higher in November. As the U.S. economy grows and construction activity increases, it's only natural that base metals would see a much-needed boost in demand, bringing them out of the doldrums for the first time in a number of years.
Source: Bloomberg
Is the rally sustainable?
Whilst any rally of this magnitude is likely to result in people crying out that it's a bubble, we think with or without Trump's infrastructure plans, prices can be sustained. Recent data out of China reveals that banks extended US$295 billion worth of new yuan loans in January. This is the second-largest volume of new lending since records began, with the majority of the cash understood to have fallen in the hands of manufacturers. If this proves to be the case, then it appears to be very likely that demand for base metals will continue to strengthen.
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