Page 80 - pd296-August21-mag-web

oPInIon

funds give copper a wide berth as

China cools

und managers have been reducing their both the London and Shanghai markets. Such macro concerns are being reflected
Fexposure to copper as the market heads LME broker Marex Spectron estimates in copper’s micro dynamics.
into what is normally a seasonally weak spot speculators are currently net long of the LME China’s imports, the bedrock of last year’s
for demand. copper contract to the tune of 9% of open price recovery, are slowing, down for the
Supercycle bulls will argue that this is just interest, down from a multi-year high of 62% third straight month in June.
a temporary soft spot before green infra- in February when copper’s bull fires were The chill effect is starting to hit the LME
structure stimulus starts building momentum blazing. market in the form of rising inventory and
in Europe and the US. Funds are more enthused about alu- loosening time-spreads.
Supercycle sceptics counter that copper minium, tin and even unsexy lead on Marex LME stocks currently stand at 220,575t,
and other industrial metals haven’t yet es- Spectron’s estimates. more than double year-start levels and the
caped the old China cycle, which is currently highest since June last year.
Investors have reacted by rotating out of “
cooling fast. 12 valued at a contango of $US35.50. The
The benchmark time-spread closed July
Copper is in a period of peak narrative
confusion and the price is currently reflect- Doctor Copper same part of the forward curve was trading
ing that uncertainty. LME three-month metal in a backwardation of $US30 as recently as
has been locked in choppy sideways action may seem to May.
after last month’s slide to the $US9,000/t be nodding off to the It’s a sign of a much looser physical mar-
level, last trading around $US9,370. summertime blues, ket as more units are freed up by China’s
slowing import appetite.
copper in search of better returns in “hotter” but that doesn’t China’s slowing growth impetus is becom-
metals, particularly iron ore and steel, and a ing more apparent just as copper heads into
resurgent energy complex. mean it’s going to be the northern hemisphere summer holiday
Funds remain net long of the CME copper a quiet summer. period, always a seasonally weak spot for
contract and indeed the latest Commitments demand.
of Traders Report shows the long growing It’s still far from clear whether the recovery
from 19,266 contracts at the end of June to momentum in the rest of the world can pick
32,506 at July 12. Chinese speculators are equally conspic- up China’s slack.
However, that’s not a reflection of in- uous by their absence. The even bigger question is whether the
creased bull commitment. Money manager Activity noticeably slowed on the Shang- decarbonisation trend – with its promised
outright long positioning has risen only mar- hai Futures Exchange (ShFE) copper con- supercycle demand boost from EVs and
ginally from 58,099 contracts to 60,152 over tract last month. Volumes were the lowest renewable energy – is yet sufficiently devel-
the same period. It is still down by more than since October last year, while market open oped to exert a tangible impact on copper’s
half since early May. interest has fallen to levels last seen in early dynamics.
Rather, the change in net positioning is 2020. Since there is insufficient evidence to
down to a sharp reduction in short positions Investors in all three copper contracts are prove the case either for or against, it’s no
that accumulated after LME copper hit a evidently giving the metal a wide berth right surprise that the investment community has
nominal all-time high of $US10,747.50/t in now as the market cools and the broader left copper to find surer short-term bets.
May. bull-bear argument remains unresolved. The resulting lack of positioning, mani-
Bear bets on the CME contract have been Copper’s hardest headwinds are blowing fest in low open interest across all three
slashed from 44,978 to 27,646 contracts. from China, where the post-COVID stimulus exchanges, leaves the copper price precari-
Given the preponderance of automated trad- effect is diminishing. ously poised.
ing programmes on the CME market, this is The country’s economic growth is ex- A mass move back into copper could in
likely a reflection of copper’s ability to hold pected to have braked sharply in the second itself be a key price determinant, whether on
the $US9,000 level and break the downward quarter due to higher raw materials costs the short or the long side. It’s quite possible
price momentum from the May highs. and new COVID-19 outbreaks, according to that the trigger will not be copper-specific but
The broader lack of investor conviction on a Reuters poll of 51 economists. rather a realignment of the broader macro
copper is also clear to see in collapsing open The central bank’s move to cut reserve reflation trade.
interest on the CME contract. It has slumped ratios for the first time since April last year, Doctor Copper may seem to be nodding
back to one-year lows and a time when the freeing up an estimated 1 trillion yuan off to the summertime blues, but that doesn’t
post-lockdown copper rally was in its forma- ($US154.19 billion) in long-term liquidity, is mean it’s going to be a quiet summer.
tive stages. a sure signal that policymakers are worried
Investor indifference is also characterising about growth again. – Andy Home, Reuters

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