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No one likes a show off. For that reason, Lex prefers to discuss its investment misses more than its wins at this time of year. One clanger which made us blush was our bullishness on the red metal itself, copper.
At least Lex did not “print the top” of the price this year. That came just two weeks afterwards, in late January. The copper price then slumped during the year, before staging a late recovery. This left bulls with a measly 2 per cent gain on the year.
Lex’s thesis relied on two ideas that were widely held at the time. First, that China’s post-Covid economic recovery should enable construction activity to resume, with its attendant demand for domestic wiring. Second, that copper inventories relative to consumption in China were very low at two weeks, about half the decade average.
Lex had also expected rate expectations to peak early in the year. That would have pushed down the greenback. A weak dollar trend usually presages a bullish period for commodities, partly because they are priced in that currency. Instead the US economy motored along, while China spluttered.
Perversely, Lex never thought a Chinese recovery would bolster the oil price. We expected Brent to stay below $100 per barrel. It did. A tripling of Brent’s price in 2020-2022 felt too much, too fast. Demand, especially in the US, had to suffer. Lex was right about this.
The price ceiling has held during oil output reductions by Opec members, especially Saudi Arabia. Even a horrific war between Israel and Hamas in Gaza had only a fleeting effect.
US crude supply recently hit a historic high. Iran has been selling to China. Such factors have imposed a cap on prices.
Greater bullishness was evident in the M&A business. US oil companies ExxonMobil and Chevron each announced large acquisitions: of Pioneer Resources ($59.5bn) and Hess ($53bn), respectively, in October.
Copper’s performance has been lacklustre this year. But Lex remains positive on the commodity in the medium term. We, meanwhile, regard oil as a short-term trading bet, either buying or selling. But we are not in the business of calling which way up a coin will land when it is spinning in the air.
Lex is the FT’s concise daily investment column. Expert writers in four global financial centres provide informed, timely opinions on capital trends and big businesses. Click to explore
