Copper hits summer swoon in late June and early July

Copper hits summer swoon in late June and early July

Analysts point to investment funds abandoning the red metal, but rebound may be in the offing.

July 9, 2018
Brian Taylor

The value of copper on metals exchange markets around the world dropped steadily in late June and early July, with some analysts indicating investment fund managers have soured on the red metal. A rebound the weekend of July 7-8 seemed to reverse copper’s downward momentum, however, heading into the week of July 9.

In notes accompanying his July 2 Copper Journal Weekly Report, John E. Gross of Long Island, New York-based J.E. Gross & Co. Inc. wrote that in a three-week span in mid- and late June, “Copper has fallen 34 cents, or 10 percent, from its recent high.”

A July 4 online article by Andy Home of Reuters says the low price level reached by London Metal Exchange (LME) copper occurred in part because “funds have been slashing their exposure to copper.”

Home points to figures collected by Denmark-based Saxo Bank that found such fund managers were net sellers of 19 of the 24 most widely traded commodities in the final week of June. “Tariffs and escalating trade tensions have flipped the investor risk switch to off,” writes Home.

Beyond trade tensions, Home says copper has further suffered from skepticism as to the actual growth occurring in China’s economy. In addition to those concerns on the demand side, he writes that supply remains abundant, with global mined copper output growing by 7 percent in the first quarter of 2018 compared with the previous year.

In notes accompanying his July 5 Copper Journal monthly recap, Gross writes, “June was a tough month [for copper]. The combination of trade tensions and the stronger dollar hit metals pretty hard, and, at this point, there is little on the horizon to suggest things will get better anytime soon.”

In a July 6 email to his readers, Gianclaudio Torlizzi of Milan-based T-Commodity refers to copper as “the worst performer among metals” in recent weeks and says it is moving close to a perceived $6,200 per metric ton support level.

“The collapse of copper follows the one of emerging market currencies,” writes Torlizzi. “Beside the trade issue, the main culprit remains the modest reduction in [the United States Federal Reserve Bank] balance sheet and the small rate rise, which shows the extent of the imbalances built by many economies in the quantitative easing ‘lunacy’ years.”

As far as contrarian indicators, the LME copper price rallied in the weekend July 7-8 trading period, regaining about $162 per metric ton (7.3 cents per pound) in value over that weekend. Copper on the Shanghai Futures Exchange (SHFE) also rebounded 1.1 percent in value over that weekend and in early Monday morning trading on July 9, according to Reuters

In his July 4 article, Home notes at least one investor remains bullish on copper who, as of his deadline, was “sitting on between 40 and 50 percent of the LME copper [inventory] and, quite possibly, on the time spreads.”

By July 18 long-term bulls emerged in the form of analysts from U.S.-based Citigroup Inc. According to another Reuters online report, a duo of analysts predicted copper would rebound in the coming years, rising to average annual prices at $8,000 per metric ton in 2022 and more than $9,000 per metric ton by 2028.

The analysts contend the price of copper is bound to rise because “the metal is getting much more difficult and more expensive to mine,” according to Reuters.

Brass Copper