A Practical Guide To Predicting Commodity Cycles

You all know that predicting commodity cycles can be super profitable so long your analysis is on the ball.

Here is a practical lesson on how to predict commodity cycles.

Example: Copper

STEP 1: Access Historical Charts

I Googled “Copper Price Historical Chart,” and landed on this 45 year chart.

predict copper super cycle

The recessionary periods are represented by vertical gray bars. As you can see that the prices of copper started spiking from 2003-04 onwards, crashed after the 2008 bust and then picked up from 2010. Volumes also have picked up from 2010 on, and the copper price spiked to $4.50 (per lb) by 2013-14, and then subsequently corrected. Thereafter it resumed its upward march and is currently at around $3.05 with support at $1.50 and resistance at $4.50. As you can see, the volumes have picked up in recent years, which is a bullish signal.

STEP 2: Search For The Commodity’s Global Global Demand in the Near Future

The next step was to figure out how copper demand will pan out in the near future. I Googled “global copper demand 2020” and landed on a mid-2017 document that discussed about the global copper demand and supply.

(You can get authoritative documents for any commodity so long you know how to search intelligently on Google.)

In this document I learned that:

a. Substantial capacities were added between 2011-16 and that capacities were not expected to increase much between 2017-2021.

copper mine capacity 2020

b. That demand will outstrip supply as we head towards 2020, a factor that will push prices higher.

Copper demand-supply scenario

c. That no substantial investment in copper mines is expected so long prices do not rise dramatically.

d. Prices are expected to rise faster than costs, resulting in better margins.

e. That the supply of copper scrap increased substantially, a factor that helped keep prices in check despite demand spiking up.

f. That China’s industrialization cycle may end by 2026, a factor that will ensure that copper prices do not spike up. In fact, it is expected that copper prices will remain steady after 2026 or taper off.

STEP 3: Search for the Commodity’s Uses

Googling “uses of copper” helped me discover that copper is used in the following applications:
a. Electrical equipment because it conducts heats and electricity efficiently.
b. Construction (plumbing, roofing, etc.)
c. Industrial machinery
d. Water purification
e. As a poison in agriculture (copper sulfate)
f. Other minor applications such as detecting sugar.
The biggest takeway from these uses was that the boom in electric vehicles and technology (advanced electronics that may trigger technological obsolescence) will drive demand for copper going forward.
I also Googled “future uses of copper,“ and learned that copper will be used in the following applications that have potential in the future:
a. Solar energy
b. Earth-coupled heat pumps
c. Electric Vehicles
d. Electronics (as usual)

STEP 4: Global Disruptions

The world is now cruising uncomfortably on rocking terrain. America has triggered a global trade war, countries are resorting to protectionism, and there are geopolitical tensions (N Korea-USA, Israel-Iran).

Any escalation of any one situation can lead to a drop in commodity prices (except precious metals).

STEP 5: Weigh the Bullish and Bearish Factors

DATESTOCKWHOBUY/SELLNO. OF SHARESNOTES
13th to 18 Oct 21Integra TelecomPromoterSELL10,53,833 @ 54.5Stock jumped up today Worth tracking
13th to 18 Oct 21AlankitPromoterSELL11,90,000 @ 17.25Stock cosed at 17.70. Difficult to understand what's up. Sometimes it jumps after a sell, sometimes it falls
13th to 18 Oct 21Just DialMutual fundSELL2655172 @ rate unspecifiedNot a good sign. Rate was soft today.
13th to 18 Oct 21Kewal KiranConnected InvestorSELL1,00,000 @ 1005But stock jumped 35 bucks. Looks good
13th to 18 Oct 21Vijaya DiagnosticFIISELL5,11,761 @ 562Stock closed at 574 today. Can't judge which way these new issue listing will go
13th to 18 Oct 21Today's NSE deals not yet uploaded
13th to 18 Oct 21
13th to 18 Oct 21
13th to 18 Oct 21
13th to 18 Oct 21
12-10-21Sical LogisticsInvestorBUY3,97,650 @ 13.92Good sign. Stock spurted 20% on 12-10
12-10-21Orient PaperInvestorBUY21,00,000 @ 32.55Good sign. Track the stock.
11-10-21Meghmani OrganicsPromoterBUY50,000 @ 109Good sign, stock is now at 122
11-10-21Rattan IndiaAditya Birla TrustSELL132913520 @ rate unspecifiedTrack it. Sometimes a significant buyer enters a stock when a big player exits
11-10-21Bharat DynamicsLICSELL3760475 @ rate unspecifiedThe sale was absorbed and the stock moved up 5 bucks today
11-10-21GoldstoneInvestorBUY1,00,000 @ 38Good sign, stock hit UC..
8-10-21California SoftwareConnected InvestorSELL3,48,500 @ 34.50Stock closed higher, track it, looks interesting
8-10-21Lokesh MachinesInvestorSELL1,00,000 @ 52.50Stock closed higher, someone is buying
8-10-21NazaraFIIBUY2,14,823 @ 3011Bullish
8-10-21AlankitPromoterSELL11 lakh shares @ 19.10Stock fell today, can't get a hang of what's going on here
7-10-21Chemcon SpecialtyPlutus WealthSELL180000 @ rate unspecifiedStock's holding steady
7-10-21Agro PhosInvestorBUY50,000 @ 18.25SME stock.. migrated to main board.. looks OK to track
7-10-21Dhanalaxmi BankInvestorBUY9,00,000 @ 16.86Unsure if this laggard can work out
7-10-21Lincoln PharmaConnected InvestorBUY50,000 @ 395Good sign
6-10-21Intrasoft TechConnected InvestorSELL1,00,000 @ 127Stock's holding steady, can be tracked
6-10-21Associated AlcoholConnected InvestorSELL1,30,000 @ 497Stock closed at the same rate .. so someone is buying
6-10-21Prerna InfrabuildPromoterBUY1,06,000 @ 20.90This transaction happened over the last week. Stock is now 27. Worth tracking
6-10-21Chemplast SanmarFIIBUY81819 @ rate unspecifiedThe stock is moving up nicely. Track it
5-10-21California SoftInvestorBUY1,52,609 @ 29.52Unsure about this stock, but worth tracking, hit UC today
5-10-21Consolidated FinvestConnected InvestorsBUY8 lakh shares at 147.95Bullish. Closed at UC.
5-10-21IG PetroConnected InvestorBUY1,63,890 @ 896Bullish
5-10-21Sansera EnggGovt of SingaporeBUY58873 @ rate unspecifiedGood Sign
5-10-21Jaiprakash IndPNBSELL150870214 @ rate unspecifiedIf stock does not fall, this is bullish signal because nationalized banks are usually the last to sell out
4-10-21Compucom softwarePromoterSELL 1,78,768 @ 14Stock at 16, UC. Something's up
4-10-21Haldyn GlassPromoterBUY47000 @ rate unspecifiedTrack it, something's up
4-10-21India GlycolFIIBUY1,97,924 @ 945Bullish
4-10-21Pioneer EmbroideriesConnected InvestorSELL1,50,000 @ 60Stock closed at 62. This is bullish
4-10-21Prakash IndConnected InvestorBUY9,19,923 @ 75Large purchase but stock didn't appreciate. Worth tracking
1-10-21ICDSConnected InvestorBUY75,000 @ 75Stock hit UC
1-10-21India GlycolFIIBUY1,86,947 @ 830Bullish
1-10-21Avonmore CapitalPromoterBUY1,00,000 @ 40Bullish
1-10-21Haldyn GlassPromoterBUY84,000 @ 38Good sign
1-10-21Alicon CastalloyPromoterSELL2,01,500 @ 755Stock is 770+. Strong buyer in the stock
1-10-21RRILPromoterBUY92,291 @ 12.8In textiles, but lousy balance sheet
1-10-21JaiprakashPromoterBUY2,00,000 @ 8.3Small purchase
30-9-21Savera IndDirector's relativeBUY1,08,639 @ 50Stock fell to 48. Typically, director's relatives are very informed buyers. Track the stock
30-9-21SubexPromoterSELL4,38,000 @ 51Stock held steady
30-9-21Lokesh MachinePromoterBUY58,000 @ 51Good sign. Promoter buying regularly
30-9-21Ganges Securities (Birla Sugar) (Holding Co)PromoterBUY1,15,000 @ 91Good sign but this is ultra slow mover
30-9-21Banswara SyntexDIISELL532578 @ rate unspecifiedBut stock went up.. track it
30-9-21Aakash ExplorationConnected InvestorBUY1,10,000 @ 235Stock is available at 222. Unsure about it
30-9-21Just DialNalanda FundSELL5,17,765 @ 991Nalanda is a reputed PMS. Stock anyway closed steady

STEP 6: Analysis

 Though demand of copper outstrips supply at the moment, the increased supply of copper scrap and the possibility of capacities getting commissioned have kept prices in check. Nevertheless, the demand for copper will increase as EVs and solar energy applications worm their way into daily life.

At this moment, it will be safe to say that there is nothing majorly bullish about copper because if prices spike up, new capacities will be added very quickly, and existing production disruptions also will get set right, leading to a correction.

Therefore, as things stand, with the possibility of trade wars upon us, we can assume that copper will be range bound with support at $1.50 and resistance at $4.50. Anything over $4 or so will make new capacities kick in.

Conclusion

 Well, this is more or less it. You can try this method for any commodity and check how it works. You also can dig deeper by Googling for terms such as
“why is  (commodity’s) supply disrupted”
“seasonal factors that impact (commodity’s) production (or, demand).”
Good luck, and drop in a line if you found this article helpful.
PS: If I were you, I’d buy a quality copper scrap recycling stock and hold it for 3 years. It will become a sure multibagger.

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sunil.tinani

3 Comments

  1. Hi
    You mentioned about a better choice : buying quality copper scrap recycling stock…
    Will appreciate if you can suggest some names

    Reply

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