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Copper inched lower on Wednesday after vacillating widely the day before. The metal has been on a slide since last Friday after surging to multi-year highs following Donald Trump’s surprise US election win as he pledged to boost infrastructure spending. A strong rally which sent the commodity higher by more than 11% signaled to some traders that prices might have risen too far, too fast.
So far in this quarter, copper has been the best performer on the London Metal Exchange thanks to more evidences of economic resilience in China, which accounts for 40% of the world’s copper demand. Besides, the U.S. president-elect Trump also pledged to spur 1 trillion U.S. dollar of investment on infrastructure such as bridges, airports and roads.
According to market sources, the victory of the Republican candidate increased the volatility in metal prices and the rally was only triggered by speculations. Therefore, it is inevitable for the market to fall into a correction as everyone who would like to buy has bought and there are mostly sellers left in the market.
Adding to copper’s woes, executives at some of the world’s major producers of the metal on Wednesday said that global copper markets will be oversupplied for at least two years. Iván Arriagada, chief executive of FTSE 100 miner Antofagasta has warned that demand growth in China will be outweighed by supply built up during the boom years.
Speaking at an industry conference in Shanghai on Wednesday, Duncan Wanbald, head of base metals and minerals at Anglo American, claimed that he only saw a “slow” increase in prices over the next two years before a deficit emerges in 2019.
Tougher environmental regulations on mining and higher costs are other factors that will act as major long-term challenges for the industry, executives said.
Fig: COPPER D1 Technical Chart
Copper retreated from the highest level since late May, 2015 at 2.7333 to breach below the 38.2% level at 2.6648 and is approaching another Fibonacci support at 23.6% handle at 2.3880. As can be seen from indicator charts, ADX has been sliding from an extremely high level with +DI line pointing downwards. Meanwhile, RSI has not escaped from the overbought zone yet, signaling further declines to come.
Buy Digital Put Option from 2.4730 to 2.4300 valid until 20:00 GMT November 16, 2016