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November 20, 2018

Copper markets signal for caution among traders

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CopperThe copper recovers from its biggest one-day collapse in two years, but market attitudes are not particularly straightforward. Although the industrial metal prices remain at high level during the year, there are a number of reasons for caution among traders.

The copper reserves held on global exchanges remain high despite the supply disruptions in China and Indonesia at the beginning of the year. A major increase in the reserves of the London Metal Exchange was the catalyst for a price collapse on Tuesday and recalled that the market was not suffering from a shortage.

The forward contract trends of copper also signals availability, which may persist in the coming months. The benchmark copper prices with delivery after three months are lower than those in contracts with a later date. This situation is called contango and is characteristic of the saturated markets. For example, the zinc is the opposite – buyers pay significant premiums for short-term contracts because of the contraction prospects.

The global growth synergy has been a key driver for industrial metals this year, but fears that China’s measures for cooling of property markets will be counter-winds. The copper deliveries to the largest consumer (China) are not particularly high this year, suggesting that demand for copper in China will not put pressure on supply.

The copper sales have been partly driven by concerns about the large volume of long positions in Shanghai futures contracts in recent months.

The investors wonder when and how these positions will be withdrawn and are more and more cautious about making their own bullish bets. The sharp fluctuations in Shanghai on Tuesday suggest that these positions may close, which may lead to short-term price pressures.

The copper fell by 4.7% on the London stock exchange on Tuesday to its lowest level in two months. The metal, however, has risen 19% since the beginning of this year to 6,570.50 USD per ton.

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