Funds have this year played copper from the short side and from the long side, but with little success either way.
They are now broadly neutral as they and everyone else try to work out where Doctor Copper is heading next.
In part, this is a reflection of copper’s lack of directional impetus in recent weeks.
The London Metal Exchange (LME) contract has since late February been treading water in a US$6,300 to US$6,550 range with an absence of clear chart signals. On Monday, it was trading around US$6,470 a tonne.
That has muted activity from the black-box funds that feed off momentum and other technical indicators.
But copper’s well-trod trading range is itself a sign of how confused the broader market is right now with no clear consensus on the short-term outlook.
STUCK IN NEUTRAL
Fund managers held a net long position of 888 contracts on the CME copper contract as of last week, according to the latest Commitments of Traders Report (COTR).
They started the year in a bearish mood with money manager short positions flexing out to 88,003 contracts in early January. Negativity to copper was down to the intertwined themes of a Chinese slowdown and a potential trade war between China and the United States.
Both concerns have partially abated since then and outright shorts have been pared to 62,811 contracts.
A tentative switch to the long side took place in March with long positions reaching 74,086 contracts, the strongest bull commitment since the middle of last year.
That too has since been reduced, to 63,699 contracts, as copper has stubbornly declined to break up out of its range.
The current neutral positioning on CME is matched in London and Shanghai.
LME broker Marex Spectron estimates that the speculative net long in the London market is running at a marginal 3,700 lots, equivalent to 2.4 per cent of open interest. It has retreated from a high of 13.5 per cent in March.
There is no equivalent of the COTR in China, but the Shanghai Futures Exchange copper contract is showing every sign of investor neglect.
Volumes fell by 27 per cent year-on-year in March and by 19 per cent over the first quarter. Market open interest of 577,516 contracts at the end of March was 34 per cent off the pace of March, 2018.
The day-trading flash crowd that occasionally sweeps across Chinese commodity markets is evidently giving copper a wide berth at the moment, preferring clearer-cut directional markets such as steel rebar or the resurgent Shanghai stock market.
“All participants in the copper industry remain confident in the longer-term demand potential,” according to BMO Nesbitt Burns’s review of last week’s CESCO industry meeting in Santiago.
Copper’s longer-term outlook has been invigorated by expected demand growth from the new energy revolution. Electric vehicles are seen as just the tip of a bigger electrification theme that ranges from wind turbines to “smart” homes.
What happens in the shorter term, however, is confusing people.
Even research heavyweights CRU and Wood Mackenzie can’t agree.
“At the BMO Dinner on the Monday night, we heard very differing views from both CRU (bearish) and Wood Mackenzie (bullish) on the near- to medium-term copper outlook,” according to BMO.
This split in opinion is down to copper’s currently ambiguous micro indicators.
Exchange stocks are historically low, but recent large-tonnage inflows to the LME warehouse system – 80,000 tonnes in March and another 31,000 tonnes at the start of April – suggest there is no shortage of copper “out there.”
Chinese imports have been resilient so far this year with refined copper inflows just 0.6 per cent off last year’s strong pace in the first quarter.
But physical premiums are bombed out, with Shanghai Metal Market’s assessment of the Yangshan premium languishing at a two-year low of US$52.50 a tonne over LME cash.
Disruption to mine supply is running at elevated levels so far in 2019, but the implications for refined metal balance are being blurred by the number of hits to smelter production.
Given such a mix of confused and confusing moving parts, maybe it’s no surprise that copper is defying easy categorization in terms of market narrative.
BIG PICTURE NO CLEARER
The same ambiguity covers the bigger picture.
The spectre of a full-blown trade war between the United States and China is much diminished, with U.S. Treasury Secretary Steven Mnuchin expressing optimism that the two sides are “close to the final round” of negotiations.
Growing optimism that some sort of trade deal can be reached, however, is being offset by signs the Trump administration is preparing to turn its trade ire on the European Union.
A Chinese slowdown, the other great negative for the copper market at the start of the year, is also starting to reverse.
Beijing’s latest stimulus package is starting to work its way through the Chinese system as evidenced by stronger credit growth and recovering purchasing managers indexes for the manufacturing sector.
That said, there is still plenty of wariness that this latest injection to revitalize China’s flagging growth may yet prove “metals-lite” as policy-makers steer more money toward consumer rather than heavy industrial sectors.
And although most analysts are looking for some sort of flow-through to metals demand in the second half of the year, there is now plenty to worry about outside China, most pertinently global weakness in the automotive sector and accumulating evidence of a manufacturing slowdown in Europe.
“Very odd and conflicting elements all the way round” with “similar contradictions” in copper’s own micro picture. That’s the summary of copper analyst John E. Gross, writing in the latest “Copper Journal Weekly Report.”
The money men seem to agree, essentially holding neutral station on the copper market until things become clearer.