Copper, often overshadowed by flashier commodities, tends to capture investor attention only once or twice a year. However, the current technical and fundamental setup suggests that copper might attempt a significant move toward all-time highs once again. Despite ongoing global macroeconomic challenges, the structural deficit in the physical copper ore market continues to provide the necessary leverage for potentially aggressive price advances. In this context, China’s role and the subtle yet crucial trends within the metal markets are areas that demands closer attention.

China’s sluggish recovery from the COVID-19 pandemic has been well-documented, with the real estate sector still posing a systemic risk, wage growth stagnating, and geopolitical tensions creating headwinds in critical industries like A.I. Yet, amid these challenges, copper has shown some positive signals. As one of the world's largest consumers of copper, China has seen a notable decline in Shanghai Copper Warehouse stocks (inventory) since their peak in June, with inventories dropping by 28%. This decline follows China's strategic move to reduce its reliance on physical copper ore by increasing the use of recycled copper—a temporary fix that seems to be tapering off.

Although China’s industrial production levels have not returned to pre-pandemic heights, they are stabilizing around 5%. With potential stimulus measures on the horizon, the correlation between copper’s price action and the anticipated demand surge could provide near-term support at the $4 level. Additionally, from a technical perspective, copper cycles often culminate in a triple-top formation, where prices test cycle highs three times before reversing. In the current cycle, we have witnessed only one high, suggesting that two more attempts to retest these peaks could be imminent.

As these dynamics unfold, investors would do well to keep a close watch on copper—a commodity that may be on the cusp of a significant second wave.

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