In a May 20 article for Seeking Alpha, I wrote, “A sustained break above the $2.43 per pound level on the July COMEX futures contract could lead to follow-through buying and higher prices for the base metals.” On that day, July futures were trading between $2.4010 and $2.4650 per pound.
Over the days that followed, a series of articles on some of the leading nonferrous metals producers in the world all expressed the same theme. If 2020 turns out to be anything like 2008, we could see some explosive moves in the metals as well as the stock of those companies.
Meanwhile, the price of copper continued to climb, reaching $2.6650 per pound on June 10. The shares of all of those companies have been trending higher along with the Invesco DB Base Metals Fund (DBB).
The copper barometer is sending a positive signal
The price of nearby copper futures fell to a low of $2.0595 in mid-March when the global pandemic caused selling in markets across all asset classes.
Since then, copper has experienced an almost V-shaped recovery. The price reached a peak of $2.70 and was trading just below that level on June 29. The now active month September futures contract settled at $2.6925 on June 29, after reaching a high of $2.7145 per pound.
Copper fell to its lowest price since September 2016 in March and was trading at its highest levels since January as June comes to a close.
As a leader in the industrial commodities sector, copper has been sending an optimistic signal even as the number of cases of Coronavirus continues to rise. Price momentum and relative strength indicators were in overbought territory but are continuing to point higher. Weekly historical volatility at just below 17.5% dropped from over 37% in mid-May. After hitting the lowest level since 2016 at 161,571 contracts, the total number of open long and short positions in the COMEX futures market has risen to 191,223 contracts as the price moved higher. Rising price and increasing open interest tend to be a technical validation of a bullish trend in a futures market.
Meanwhile, the shares of companies that produce copper and other base metals and industrial commodities have moved higher with the price of the red metal.
An update on BHP
On May 20, I wrote that BHP shares could soar over the coming months and years as the monetary and fiscal stimulus is bullish fuel for the price of the commodities the company producers. On May 20, BHP shares were trading at $45.86.
On June 29, BHP shares closed at $48.98, 6.8% higher than in late May.
RIO has rallied
On May 21, I wrote that Rio Tinto also has lots of upside potential as 2020 is shaping up to be a lot like 2008. RIO was trading at $51.82 on May 21.
The chart illustrates the rise to $55.59 per share on June 29, 7.3% higher than at the time of my recent article suggesting that RIO was at a bargain price.
VALE is higher but NILSY has gone the other way
My article on VALE SA (VALE) was published on Seeking Alpha on May 26. On that day, the shares closed at $9.11.
VALE, the Brazilian mining giant, rallied by 12.1% since the time of the last piece and was trading at $10.21 per share on June 29.
The June 2 piece on Norilsk, the Russian nickel, base metal, and platinum group metal producer was another bullish article with NILSY shares trading at $32.43 on that day.
NILSY has declined to $27.21 per share on June 29, 16.1% lower in under one month. NILSY fell with the prices of platinum and palladium, while nickel has only suffered a marginal decline since the beginning of June. The shares of the Russian producer can be highly volatile. At just over $27 per share, they are still in the buy zone.
Copper is the leader- DBB has moved to the upside since late March
Copper is a leader of the pack when it comes to the base and industrial metals, minerals, and commodities. Since the end of May, the price of the red metal moved from $2.4425 to $2.6920 per pound or 10.2%. The fund summary and top holdings of the Invesco DB Base Metals Fund (DBB) include:
Source: Yahoo Finance
DBB has net assets of $87.62 million, trades an average of 81,658 shares each day, and charges an expense ratio of 0.75%. On the final day of May, the DBB product was trading at $13.00 per share.
At $13.60 on June 29, DBB was 4.6% higher than at the end of May.
If copper is sending a signal to the rest of the industrial commodities, the move to the $2.70 level could be welcome news. I remain bullish for the prospects of all of the mining companies and the prices of base metals and industrial commodities. An end to the pandemic and the massive liquidity that has stabilized markets could ignite a bullish fuse in this sector of the raw materials market over the coming months and years. I am a buyer of the stocks and commodities on price weakness, as volatility in the sector is likely to continue over the coming weeks and months. If 2008 is a model for 2020, we are now at a time where building long positions for the coming years could reap significant rewards.
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Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Additional disclosure: The author always has positions in commodities markets in futures, options, ETF/ETN products, and commodity equities. These long and short positions tend to change on an intraday basis.
Editor’s Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.