Title: Anatomy of a Breakout — A Look at Copper, Plus Trip to HK This Week Show: Paulo Macro (Substack) — paid Guest: Paulo Macro ("Cloudbear") Date: 2025-OCT-25 URL: https://paulomacro.substack.com/p/anatomy-of-a-breakout Length: written post (no timestamps) Note: Back-filled post (processed 2026-JUL-07; predates the source's other archived posts). A framework note on how a commodity breakout confirms itself — using the 2004 oil breakout as the template (curve backwardation + a rising long-term price) and applying it to copper today. Names his preferred expressions (ALDE, TGB). Body reproduced for personal study; Substack chrome (like counts, Share/Previous/Next) removed.
Back in the early 2000s, I received my first buyside analyst research coverage for an international smallcap equity team. I was asked with an assignment nobody on the team had looked at in years. When you're starting out, you do the job nobody wants, and in this case I was analyzing metals, mining, and energy in a coverage which forever colored my knowledge and experiences in commodities, including in how I think about the present supercycle underway. It was a lonely job and there were very few of us in the sector, to the point where friends threw me sideways glances at a bar during the holidays of 2004 as I beamed about how oil had finally and definitively taken out $40/barrel…what a great year it had been! Nobody cared. Value-oriented L/S hedge funds were just starting to burst into their golden era. The predecessors to today's large multi-strategy pod shops were still using night traders in NY to operate in the Asian emerging equity story and still one or two years away from opening offices in HK and Singapore. The crude oil price was oddly invisible.
To set the stage, you have to understand that the crude oil price had traded for decades in a range bounded by a ~$10 floor and $40 ceiling. The chart below from 1990-2010 shows you the pop to $40 during the first Persian Gulf War (Operation Desert Storm, red line) followed by a long road to nowhere in the 1990s and a few attempts at ~$40 in 2000 and 2003, before breaking out in 2004.
Zooming in on the breakout… beyond the narrative around an emerging China story that was increasingly catching fire, a big sign for me that the landscape for oil had changed as we broke out of $40 in mid-2004 was actually confirmed by the evolution of the oil curve. By way of example, I will use the colors of the rainbow to show you progressive peaks from 2003 through 2005 as we broke out, and compare it to how the curve was behaving.
The first point to note is that the curves were increasingly backwardating (where longer-dated prices are lower than near-term prices, a condition which punishes storage players who would otherwise run carry trades, and thereby calls inventory out into a tightening market). But more importantly, the entire curve was inflating, including the longer-term price as shown by the white arrow.
I bring this up because the copper price has been similarly meandering over the past two decades on a long road to nowhere, bounded on the top around ~$10-11k/ton.
However, we are witnessing the LME copper curves evolve similarly. With exception of the 2024 Comex-driven squeeze (orange), the curves approached near-complete backwardation on each breakout attempt, and importantly — the long-term price has been inflating along with the curve.
With the long-term futures price now hovering around $10,500/t (~$4.75/lb), it is worth noting that most research houses have generally 'marked to market' for their long-term copper price assumptions in the same $10-11k/t range (Wood Mackenzie, S&P Global, and consensus sellside per their company models on Bloomberg).
The modeling however misses the point that EM growth should inflect higher over the next 18 months on a global central bank easing, the weakened USD impulse, and Chinese liquidity injections.
I've mentioned this before, but Chinese growth continues to be the key swing factor in the copper market until India and the Global South picks up the mantle in a few years. The chart below shows the LME copper price vs 10yr Chinese government bond yields. The yellow line shows you that something happened to this relationship in November 2020 — not coincidentally, around the time Xi began to crack down on Chinese tech (the Ant Financial IPO was suspended Nov2020) and the Chinese real estate market began its collapse of the past four years.
What happened was that the copper recovery coming out of Covid became a Western (US) demand-driven story, and you can see that in the relationship between the Comex copper price vs US 10yr breakevens.
Notice something else above… beginning in late-2024, US breakevens chopped wood but the copper price has drifted higher and diverged. Two things happened here: Trump was elected, and Chinese yields bottomed. These two developments turned the primary copper driver from a post-Covid Western recovery story into something else: global supply chain disruptions driven by tariffs, and a stabilizing Chinese economy that pivoted to rest-of-world exports. Here, inventories leave the footprints.
One would be forgiven for thinking that copper markets are well supplied. After all, global inventories on exchanges are pressing toward multi-year highs.
As most are aware, the Trump tariffs squeezed Comex copper prices vs the LME as traders front-ran what they thought were going to be sizable, persistent US premiums, and non-US metal was refabricated and shipped to the US in droves.
This Comex inventory is not going back out to the rest of the world any time soon given unpredictable US trade policy, yet when we back out Comex from global exchange inventories (ie LME + Shanghai - Comex), notice we are down to levels we have only seen during two periods: 1) the 2004-2008 China-driven bull market, and 2) the 2021-23 post Covid period when China was out of the copper game as their real estate market imploded and Western demand drove the bus.
As Chinese liquidity showed above, China is stabilizing and no longer out of the game. The setup shows that metal is in the wrong place (Comex), but also LME curves are not only inflating but now flirting with backwardation in the fronts.
Amazingly, despite the Comex drowning in metal, the steep contango that widened to its 18c maximum in May has actually been cut in half (Comex 2m-5m spreads).
Maybe it's US industrial/AI datacenter expenditure beginning to pressure the Comex timespreads — I have no idea and frankly the reasons don't really matter. However with…
Slackening US contango in the thick of an enormous Comex inventory overhang;
Low RoW inventories;
A step-function transition higher in the LME curve;
A Chinese economy beginning to feel a pulse;
…I think the copper price is about to go on a huge run right when it has oddly gone invisible despite the recent headlines around Freeport's force majeure at Grasberg.
A few more thoughts. I have heard a lot about "Broadening Out" when it comes to equities (large caps rotating to Russell 2000, etc). In one of my first notes I talked about how this supercycle is different from the 2000s because of the supply constraints from underinvestment resulting in Rolling Crackups rather than featuring a secular demand-push story like China. As gold and silver's massive bull run has garnered recent attention and fears grow of a correction or consolidation, it is worth noting just how badly copper has underperformed the precious metals.
Taking a look at copper/gold, while this isn't meant to suggest any precision on timing, my point is that if you are worried about the gold price stalling out from here, unless you can make a compelling bearish argument for copper, it stands to reason that the gold/copper ratio would inflect higher… and if that is the case, noting the last times we were at such depressed levels followed by an inflection higher in the ratio, the copper price did very well (yellow bars).
Ditto silver — with exception of the 2011 blowoff top in silver (and a secular high in all commodities), these stabs lower in the copper/silver ratio were also excellent moments to grab copper and hold on.
Call it the Broadening Out but in commodities. I think copper is about to roar.
As I have discussed in prior notes (here, here, and here), my preferred way to express this view is via copper juniors that will get cleaned up by majors in the coming M&A wave of Phase 2. I have sizable positions in Aldebaran Resources (ALDE.CN, first PEA is expected any day) and Taseko (TGB), but there are several others on a short list that have my interest.
Housekeeping
I will be traveling to HK this week to meet up with some friends…really looking forward to catching up with my pals Le Shrub, Kuppy, The Blind Squirrel, Erik, and others for a few days of original idea immersion and non-stop macro conversations straight into my veins. It's going to be a packed few days and it looks like my good friend and brilliant mind Louis Vincent Gave has some really fun things in store (the man has the room wired over there in Asia!), but I may have several hours to spare on Saturday night while waiting for the 3am flight home to NY…if you think you might be around, hit me up by replying to this email and I'll see if we can grab a drink!
As always, kindly yours,
Paulo aka Cloudbear