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Fund managers have rushed to buy copper after the price broke up out of its one-year trading range earlier this month.
Activity has surged on all three global exchanges with money managers lifting bullish bets on both the London Metal Exchange (LME) and the CME copper contracts. Market open interest on the Shanghai Futures Exchange (ShFE) has jumped to life-of-contract highs.
Much of the investment community had stayed away from copper’s sideways churn over the last year but funds are now clearly re-entering on the long side after LME three-month metal leapt to an 11-month high of $9,164.50 per metric ton on March 18.
A fresh technical picture and signs of supply stress have served to rekindle copper’s bullish flames. However, they could yet be doused if the market can’t hold its recent gains.
Money manager long positions on the CME copper contract jumped by 43% to 99,829 contracts in the week to March 18, according to the latest Commitments of Traders Report (COTR).
It’s the largest outright fund long position since May 2021. Net long positioning of 39,270 contracts is the most bullish it’s been since this time last year when the market was still pinning its hopes on a post-lockdown growth surge in China.
The bulls have been stampeding into the London market as well. Investment fund long positions soared to 70,293 contracts in the week to March 15. It’s the heaviest cumulative bet on higher prices since the LME started publishing its COTR in 2018.
There are still plenty of fund shorts around and net long positioning of 37,863 contracts is the highest in “only” two years.
Positioning in the LME’s “Other Financial” category, which includes commodity index providers and insurance companies, has also started turning more bullish. The net long position has grown to 11,693 contracts, also a near two-year high.
There is no comparable COTR in China but it’s clear that copper’s break of trading range has put it on the radar of the local investment community.
Market open interest on the Shanghai copper contract rocketed from 388,000 contracts at the start of the month to 566,000 on March 15. It has since retreated marginally to 533,000 contracts.
The trigger for all the excitement in the previously torpid copper market was a commitment by Chinese smelters to restrain output in the face of a tighter-than-expected raw materials market.
What exactly this means for the supply-demand balance in the refined segment of the supply chain remains uncertain. There is a good deal of scepticism among analysts as to how many smelters will actually cut production rather than re-schedule maintenance shutdowns or defer new capacity.
It has, though, refocused attention on copper’s stretched supply dynamics, a feature of the market that has been overshadowed by a weak demand picture over the last year or so.
Clearly, plenty of fund managers are buying into the change of narrative but whether others will join them depends on whether copper can consolidate its chart gains.
The most recent COTRs capture the build in long positions just before copper peaked above $9,000 per ton. Much of the money entering the market was likely reacting to the chart break and the resulting upwards price momentum.
LME three-month copper has since retraced all the way to a current $8,860 per ton, a key technical level that acted as resistance in the previous year-long trading range and which, bulls hope, will now provide support for a new higher range.
If that resistance-turned-support thesis holds, heavier-weight money may well follow the shorter-term technical funds into the market. If, however, copper can’t hold its gains and falls back into the old range, some of its new fund friends may disappear as quickly as they came.
(The opinions expressed here are those of the author, Andy Home, a columnist for Reuters.)
(Editing by David Evans)
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