LONDON, July 14 (Reuters) - Hedge funds are starting to buy
into the rally in copper, which continues to build upside
momentum. London Metal Exchange (LME) copper hit a
two-year high of $6,633 per tonne on Monday. At a current
$6,490, it is now up 5% on levels at the start of the year,
having clawed back all its COVID-19 losses.
Funds have built significant long positions on the CME
copper contract for the first time this year and net
money manager positioning is now the most bullish it's been
since June 2018.
What's attracting investors back to the copper market is the
current bullish mix of strong Chinese demand and fragile Chilean
BACK IN THE GAME
The latest Commitments of Traders Report (COTR) shows hedge
funds returning to the CME copper market on the long side.
Speculative positioning over April and May was characterised
by a steady reduction in short bets as the price rallied
powerfully off its March lows. Conspicuous by its absence,
however, was any sign of bull commitment with long positioning
flat-lining at very low levels.
Fund money was evidently drifting away to more enticing
markets with industrial metals still perceived to be highly
vulnerable to global economic slowdown.
That has changed over the last couple of weeks.
Speculators have lifted their outright long positions to
59,818 contracts, the highest level since January, when,
pre-coronavirus, the market was collectively still expecting
good things for the copper price in 2020.
Short positions, meanwhile have been cut to under 30,000
contracts over the last two COTR reports, the lowest level since
The net balance is a collective long position of 31,517
contracts, the strongest expression of bull sentiment for two
To some extent this shift in positioning from short to long
has been driven by the price itself because technical and
automated funds are locked in a continuous feedback loop with
the underlying market.
But it also reflects a bullish cocktail of fundamental
drivers right now.
The COTR is backdated. The most recent captures positioning
at the close of Tuesday, July 7. Since then the news flow has
turned more price positive still.
China's customs figures released overnight showed imports of
656,000 tonnes of unwrought copper in June, by some margin the
highest monthly total ever.
The full breakdown will come later this month but if
historical patterns hold true, refined metal imports were around
460,000 tonnes, also a record monthly high.
It's quite possible that June's figure may prove to be an
outlier but the underlying trend has been running since the
start of the year.
China's appetite for imports of refined copper was already
up by 8% over the first five months of 2020. If confirmed by
China's customs full report, that year-on-year growth rate has
just accelerated to 20%.
An import-friendly Shanghai-London arbitrage no doubt helped
inflate June's tally but this year's rising trend is being
driven by a robust combination of post-lockdown manufacturing
recovery, restocking and an emerging structural shortage of
Scrap collection networks everywhere have collapsed during
lockdowns, a supply-chain blockage that has been compounded in
China by the country's clamp-down on scrap imports.
Copper scrap imports slumped by 48% in January-May. A
promised new classification system, intended to replace the old
quota system, failed to launch as expected at the start of this
China, remember, is the world's largest processor of old
scrap into new metal and a lack of raw material is accentuating
demand for refined metal.
There is evidently some significant stock-building taking
place in China as well.
Might this include the government stockpile agency, the
State Reserves Bureau (SRB)? So far, the market is long on
rumour but short on fact. The scale of June's imports will
almost certainly invite more speculation.
While import demand in the world's largest copper consumer
grows, production in the world's largest producer is looking
Chile initially took a light lockdown touch to its giant
copper sector, which is one of its biggest export earners.
National production rose by 3.9% in the first five months of
However, COVID-19 is now spreading through the sector,
particularly at state producer Codelco, which has registered a
total 3,215 COVID-19 infections and nine deaths.
Codelco has pushed back work on expansion projects and
suspended smelter operations at one of its divisions but unions
are calling on the company to do more.
Moreover, Codelco and other miners have been running many
operations at minimal staffing levels with the inevitable
long-run danger of equipment failure due to lack of routine
Just to add to Chile's copper woes are two labour flare-ups.
The Zaldivar mine, jointly owned by Antofagasta and
Barrick Gold Corp with production last year of 116,000
tonnes, is facing strike action from July 15 after unions
rejected a new labour contract offer.
Meanwhile, a supervisors union at Antofagasta's Centela
mine, which produced 276,000 tonnes of copper last year, is also
threatening a walk-out.
Chinese demand and Chilean supply are two of the copper
market's most enduring fundamental themes. Right now they're
combining to make for a bull cocktail with extra spice coming in
the form of persistent speculation the SRB might be back in the
market as well.
Evidently, word has reached the fund community that the
copper price is on the move again. And they're back again.
Copper's exuberance looks premature, given the coronavirus
is far from defeated and many economies are only now slowly
recovering from economic lockdown.
But fund money can become a key price driver in itself if
investors commit fully to a market like copper.
We're not there yet but it seems highly likely that funds
have lifted further their bull bets over the week since that
(Editing by Jane Merriman)