China's tax crackdown chokes copper scrap supply — long copper ETFs and miners

Verdict: credible thesis, but wait for the pullback

The thesis that China's tax crackdown is choking copper scrap supply has genuine fundamental support — FCX enters this cycle with a debt-to-equity of 0.47 and a 25.9% operating margin in the 79th percentile of Materials peers — but the strategy is not live today. The strongest evidence is a validated walk-forward backtest: all three in-sample folds were positive, and the frozen baseline passed its final holdout with a 6.8% return. The trade-off is fragility: a 40% win rate and only 15 trades over five years mean the edge depends on large winners offsetting frequent losers, and exit fills modeled on daily bars could slip badly in fast commodity markets. Today, CPER's RSI sits at 70.7, well above the 40–60 entry band the strategy requires, and price is $1.81 above the 20-day line at $37.72 — so the setup is waiting for a pullback, not ready to fire. **Conviction breakdown:** Thesis support 68 — the Bloomberg-reported scrap shortage and FCX's 94th-percentile free cash flow of $1.1B anchor a credible fundamental case, but flat revenue growth of 0.07% at FCX means the copper-to-earnings translation remains unproven. Trade readiness 28 — CPER needs to shed 10.7 RSI points and pull back 4.6% to reach its entry zone; FCX is closer but still has a negative MACD. Risk quality 44 — the 2:1 reward-to-risk and 2.3% stop are disciplined, but a 0.65 correlation between the two names and CPER's skewness of -2.48 offer little diversification. Backtest evidence 62 — walk-forward validation with three positive folds and a passing holdout is solid, though exit-fidelity caveats and low trade count warrant caution. Fundamentals trend 56 — FCX's deleveraging from 5.3 to 0.47 and 11.7% ROE (75th percentile) are real strengths, but gross margin at only the 45th percentile and heavy capex of $4.5B against $1.1B in free cash flow cap near-term upside.

Trade now

CPER last closed at $39.53 and FCX at $62.56, but neither ticker is in the strategy's entry zone today. The strategy wants a candle whose low touches or dips below the 20-day average while the close reclaims it — CPER's 20-day average sits at $37.72 and FCX's at $60.93, putting both about $1.63–$1.81 above the line. More critically, the RSI (14) gate requires a reading between 40 and 60; CPER's RSI is 70.7 (10.7 points above the upper bound) and FCX's is 58.4 (just inside but barely). MACD and ADX conditions are split — CPER passes both (MACD positive at 0.124, ADX at 27.2), while FCX fails the MACD test at −1.19 but passes ADX at 26.7. Neither setup is live. For CPER specifically, the strategy stop sits at the second support rank, $38.05, roughly 3.7% below the last close. The take-profit target is the second resistance level at $40.44, about 2.3% above. With the percentage-based stop at 2.3% and take-profit at 4.5%, the effective reward-to-risk ratio is roughly 2:1. The 60-month backtest on CPER produced a 13.7% return across 15 trades with a 40% win rate and a 15.6% max drawdown; the final 12-month holdout returned 6.8% with a 5.96% drawdown, so the configured baseline passed walk-forward selection. Exit fills were evaluated on daily bars rather than intrabar data, so treat drawdown and win-rate figures as approximate. "Wait" means setting alerts on two specific levels: a daily low at or below $37.72 for CPER (or $60.93 for FCX) coupled with a close back above that same line, and an RSI (14) reading that has cooled into the 40–60 band. Today's RSI of 70.7 on CPER would need to drop at least 10.7 points before the momentum gate is satisfied. Do not chase the current breakout — the thesis argues that China's scrap-tax crackdown is tightening physical supply, but the entry rules are designed for a pullback-and-reclaim pattern, not a momentum extension. The recommended parameter setup is the frozen baseline configuration — walk-forward testing rejected every variant (SMA 16, SMA 24, and RSI thresholds of 36 and 44) because none improved on the default in the final holdout. Position sizing is capped at 25% of equity using a 2.26% fixed-risk model keyed to the second support rank as the stop reference.

Why the bull case still has support

The core thesis rests on a supply shock: per the Bloomberg piece, China's tax crackdown has driven a key copper gauge to $100, its highest in over a year, by choking recycled supply and forcing buyers into imported metal. This is not a speculative rally — it is a physical shortage created…

Scores

• Conviction score breakdown: 52
• Thesis support: 68
• Trade readiness: 28
• Risk quality: 44
• Backtest evidence: 62
• Fundamentals trend: 56

Watch items

• CPER — RSI (14)
• CPER — Low vs 20-day SMA
• CPER — MACD (12,26,9)
• CPER — Close below 20-day SMA
• CPER — Support level 2
• FCX — RSI (14)
• FCX — MACD (12,26,9)
• FCX — Low vs 20-day SMA
• FCX — Close below 20-day SMA
• CPER — Price
• CPER — Price above SMA (20)
• CPER — RSI (14) above 40
• CPER — RSI (14) below 60
• CPER — MACD (12,26,9) above 0
• CPER — ADX (14) above 20