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Mechanics Of The Copper and Commodities Markets

Feb. 5, 2018
Confused by wild pricing swings in futures contracts for copper and other commodities? You are not alone. Commodities and futures markets can appear to be complex, confusing, and intimidating.

To the uninitiated, commodities and futures markets can appear to be complex, confusing, and intimidating. Those who work in commodities and futures markets, often find them to be complex, confusing and intimidating.

Case in point: If you still have last week’s statistics page from The Copper Journal, take a look at natural gas. The Spot price, represented by the February futures contract closed at $3.505 on January 26th; the week/week change was +10%; YTD was +18.7% and the year/year was +3.4%. This week the Stat page has natural gas closing at $2.846, down 65.9¢; week/week is -18.8%; YTD -3.6%, with the year/year -7.1%.

So what happened to cause this reversal of fortune? The quick answer is found in market structure. That is to say, the Feb./Mar. spread was in a 46.4¢ backwardation (when nearby prices are higher than forward prices) when the February contract expired on Monday January 29, 2018. So the Spot price comparison on a week to week basis is $3.505 from the 26th to $2.846 last Friday, giving us the 65.9¢ decline.

 Although we haven’t seen a significant backwardation in copper for some time, the same logic applies there, and in all other futures markets as well.

 Would you like to learn more about how markets function, or how you can use technical analysis to gain an advantage in your purchasing or sales activities, or managing overall price risk? Call  or email us today at 631-824-6486 or [email protected], so we can discuss how you can put our market knowledge, skills, and experience to work for your organization tomorrow.