Copper prices fell for the third day in a row, as the month-long rally showed signs of losing momentum, mainly due to weak short-term demand forecasts in China, coupled with the risks of liquidation of long positions by hedge funds that had accumulated long positions. Great over the past two months. In general, we maintain a positive long-term outlook for this metal, in anticipation of strong demand from various sectors, including electric cars, power grids, and artificial intelligence data centers, in light of expectations that the production of existing mines will decline in the coming years.
The rally focused on macro indicators and momentum has helped attract a significant amount of speculators’ attention since last February, which in turn has contributed to additional gains, culminating on Tuesday when futures prices in New York and London reached their highest levels in two years. However, the brief rise above US$10,000 per tonne on the London Metal Exchange did not help in the least to attract selling from traders struggling to find justification for the latest move at a time when data from China indicates weak demand.
High-grade front-month copper futures reached a two-year high earlier in the week before profit-taking emerged to push them lower, in the process breaking a sharp uptrend from late March. Using Fibonacci retracement levels, the first support level can be found around $4.41 per pound followed by $4.33.
Recent developments indicate signs of weakness in demand from the Chinese industrial sector, the world’s largest consumer of metals, including copper. This was embodied in Reuters publishing a report on Chinese copper producers’ plans to export quantities of up to 100,000 metric tons of copper. The move is an unprecedented measure for a country known as a net importer of copper, and aims to curb rising prices for the metal that have raised concerns about declining demand by end-users.
The figures highlight two other indicators that point to current weak demand for copper in China. Copper stocks monitored by the Shanghai Commodity Futures Exchange rose significantly to 300,000 tons recently, the highest level in four years when demand collapsed due to the Covid-19 pandemic. Part of this rally is likely driven by speculative activity, as traders resort to stockpiling the metal to hedge against the risk of a decline in the value of the Chinese yuan. However, the overall rise in inventories does not support expectations of higher copper prices in the short term.
The premium paid by Chinese importers for the price of copper futures on the London Metal Exchange also fell to zero recently, the first time that has happened since the 2008 global financial crisis, according to analysts familiar with the data.
Until the aforementioned data improves, the possibility of the market entering a period of stability, or perhaps a deeper correction, increases.
The depth of the correction currently underway will depend largely on whether the market returns to decline
To levels that would lead to accelerated liquidation of long-term positions by investment funds. During the ten-week period leading up to April 23rd, leveraged speculators, whether from hedge funds or management trading advisors, shifted their positions from a net sell of 40,000 contracts (454 thousand tons) to a net buy of 67,210 contracts (762 tons). ), which is the highest net purchase percentage over the past three years. The bulk of the buying has occurred during the last three weeks, with the average volume-weighted price during that period being around $4.38 per pound, a level that is currently being defended by the previously mentioned support level of around $4.41 per pound.
