Article / 10 November 2016 at 10:00 GMT

And the winner is: Copper and mining — #SaxoStrats

Head of Commodity Strategy / Saxo Bank
Denmark
  • As president Trump wants to heavily increase infrastructure investments
  • Industrial metals have surged after Trump's victory
  • Copper alone is up 8%, hedge funds buy record number of futures on Comex
  • Companies such as Freeport-McMoRan Inc and US Steel Corp are shooting higher

Brooklyn Bridge

 Not all bridges in the US are in such a good shape as the Brooklyn Bridge. Photo: iStock

By Ole Hansen

President elect Donald Trump's pledge to spend more than $500 billion on rebuilding America's roads, bridges and airports helped send construction and steel stocks sharply higher following his surprise election win. 

Within the commodity space industrial metals have so far been the clear winner in the aftermath of the election. The BBG Industrial Metal index is currently trading higher by more than eight percent and on track to record its best week in five years. 

Industrial metals
 
Copper which had already been boyed by improved data from China in recent weeks has jumped by 8% since Tuesday and reached a 16-months high.  

Improvement in Chinese data, Trumps pledge to spend combined with a surge in speculative demand on exchanges from New York to London and Shanghai have all helped drive copper up to a 16-months high. This after having been trading sideways for the past year as rising supply kept hitting a market with faltering demand. The gains alone following the election result has been 8%. 

HG Copper, first month cont.

Source: Saxo Bank. Create your own charts with SaxoTraderGO click here to learn more

The recent break above trend-line resistance saw hedge funds buy a record number of futures on the Comex exchange in New York during the week ending November 1. The buying of 40,000 lots took the net-position from short to a long of 23,000 lots, some 26,000 lots below the record from July 2014. 

This followed four previous failed attempts to pre-empt a rally this year. Fresh data covering the week up until the election day last Tuesday will be available Friday after the close. 

Speculative positioning in COMEX Copper

Anyone having traveled around the US in recent years have found many roads and bridges in desperate need of repairs and arriving at run down airports do not really signal the arrival to one of the worlds biggest economies. 

Infrastructure investments is therefore a natural route for any president looking to create growth and jobs to take. So far the market has taken his pledge at face value and the speculative demand now needs to be replaced by real demand in order for this rally to be sustained. A pick-up in demand however can take many months before materializing and in between the global market will continue to see rising production looking for a home.
 
Distillery
Distilleries also use copper, but are probably not responsible
 for its recent price surge. Photo: iStock
 
China has increased domestic production in recent months and this has resulted in a sharp slow down of the imports of unwrought copper. In October the imported tonnage dropped to the lowest since January 2015, this following seven consecutive months of reduced imports. 

China copper import

For now, however, the euphoria in a sector long under pressure is clear to see with companies such as Freeport-McMoRan Inc and US Steel Corp shooting higher. 

BHP Billiton Ltd, the top miner set for the largest gain in almost eight years. (click to enlarge)
BHP
Source: Saxo Bank 

Rio Tinto Group (click to enlarge)
Rio Tinto
 Source: Saxo Bank

Freeport-McMoRan Inc. (click to enlarge)
Freeport
 Source: Saxo Bank
 
United States Steel Corp. (click to enlarge)
US Steel Corp
Source: Saxo Bank 

mining
Mining corporations are looking forward to increased investments in infrastructure. Photo: iStock
 

— Edited by Clemens Bomsdorf


Ole Hansen is head of commodity strategy at Saxo Bank


3y
ValeriyKZ ValeriyKZ
Hi! your conclusion, ready to sell or wait news from China (in monday)?
3y
Ole Hansen Ole Hansen
With both 9 and 14-day RSI above 90 the latest rally will be increasing difficult to maintain. Key data from China as you mentioned due on Monday.
3y
ValeriyKZ ValeriyKZ
Do you mean "key data" will be better then prediction?
3y
Market Predator Market Predator
Very key article based on strong fundamentals! I appreciate mentioned tickers (BHP, RIO, FCX). Tons and tons of instruments in Saxotrader is one of the KEY competitive advantage, but hard to find TRUE sector/commodity representative. You helping so much in this field, well done Ole, Thx!
3y
AlexF AlexF
Dear Ole what is your view on oil till OPEC meeting any entry level you would fancy ?
3y
Ole Hansen Ole Hansen
Thank you vm Market Predator. AlexF i have no specific levels at this stage. Observing that the IEA report was mildly bearish, US production estimates jumped to a near 5 month high last week, Opec is still discussing a deal, which i believe they will reach. The selling pressure from the overhang of speculative longs have now run its course and that should call for a period of increased stability as we await news from Opec. Latest EIA charts attached.
3y
AlexF AlexF
Thank you Ole

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