A Look at the Copper Market

Today's Lows are Tomorrow's Highs

Copper fell 15.78% on COMEX and 14.59% on the London Metal Exchange in 2014. Copper has been making lower highs and lower lows since July 2014. The copper market has just moved into a new zone and the price action could be signaling an opportunity.

Copper Breaks Key Support

Long-term support for copper was at $2.72 on COMEX and around $6,000 per ton on the LME. On Monday, January 12, 2015, copper briefly broke below key support.

Copper traded down to $2.70 per pound, a new four-and-a-half year low that could be an ominous sign for the red metal. While many analysts are watching the crude oil market, which is a falling knife, few eyes are on copper, which may just be the next knife to plunge.

Copper Looks like Crude Oil Did

Copper, like oil, is an industrial commodity. Many analysts and traders watch the price of copper for clues about other commodity prices as well as global economic growth. The break of long-term support is a watershed event for any market, but in copper, no one is paying any attention, yet. The technical situation in copper is shaping up to look a lot like it did in crude oil back in November, before OPEC non-action caused crude to fall into the abyss. The move in crude oil is ending; it cannot fall as much as it has over the past seven months (if it did, the commodity would be below zero). However, copper has not really begun to fall and it may be getting ready to fall off a cliff.

The Red Metal Could Get Ugly

As the monthly chart illustrates, copper fell below key support at $2.72. While it has recovered slightly, the move is significant. Below this long-term support level there is very little to hold copper up. The December 2008 lows of $1.2475 are now in play. This is not just technical; fundamentals support a lower copper price. LME inventories have risen to the highest level since June 2013. Deflationary forces are causing many commodities to drop. Iron ore and crude oil, other industrial commodities, have plunged. The dominant and low-cost producers are continuing to sell in iron ore and crude oil markets. They figure that lower prices will cause high-cost producers to fall by the wayside, which will increase their market share. It is an effective long-term strategy for the big commodity producers. It is not so farfetched to believe that low-cost producers will employ the same strategy in copper.

Will Copper Follow its Industrial Cousins?

Copper looks like it is getting ready to follow some of its industrial commodity cousins lower. The move may happen fast. Once copper breaks lower, the support level at $2.72 may become more and more distant in the market's rearview mirror.