Hedge funds pared their net-bullish bets on the metal just as prices capped the fourth monthly gain since May and headed for the biggest annual increase in seven years.
Holders of ETFS Copper, the largest exchange-traded fund tracking copper, withdrew $18.5mn in October, a third monthly outflow and the longest streak of redemptions since 2015.
Industrial metals are surging this year on signs of tighter supply, quickening global economic growth and new sources of demand. Goldman Sachs Group Inc boosted price forecasts last month, and Codelco said on October 31 that prices could test record highs. But rather than wait to see if that bullishness is borne out, some investors are cashing in.
“The fundamentals remain very constructive for copper and the broader industrial metals,” said Maxwell Gold, a New York- based director for investment strategy at ETF Securities LLC. “Some of the more retail investors are staying on the sidelines for now until maybe a more attractive entry point emerges.”
Money managers cut their copper net-long position, or the difference between bets on a price increase and wagers on a decline, by 3.4% to 105,077 futures and options contracts in the week ended October 31, according to US Commodity Futures Trading Commission data released Friday.
Copper futures are up 26% this year on the Comex in New York, trading yesterday at $3.1490 a pound. They rose 0.5% last week.
Here are bullish signs investors might have overlooked:
Disruptions: The “wall of supply” that Goldman predicted back in August of 2016 would push copper prices lower didn’t materialise, as production has been diminished by disruptions at the world’s two largest mines.
Concerns about a possible slowdown in China’s growth have also eased, helping spur the bank’s analysts in late October to raise their 12-month price forecast to $7,050 from $5,500 a metric tonne.
Signs of tightening: Codelco, the world’s largest producer of the metal, raised the premium it charges to deliver the metal to European customers for the first time in four years amid increasing demand.
Freeport-McMoRan Inc said it wants to reduce the amount it pays to have its concentrates processed into metal, as refiners compete for limited supply.
Heightened competition: Mining companies are rushing to boost production to benefit from rising demand driven by the growing popularity of electric cars. BHP Billiton, the world’s biggest miner, is looking for more copper deposits as it predicts a 12mn-tonne boost in demand for the metal as 140mn electric cars hit the road by 2035.
Billionaire Gina Rinehart is joining the hunt after beating rivals from Australia to Canada to acquire exploration rights for a newly awarded concession in Ecuador’s north, according to the government.
“Things look good for copper,” said Dan Heckman, Kansas City, Missouri-based investment consultant at US Bank Wealth Management, which oversees $150bn. “Do we think the run- up will continue in copper? We think it’s very possible, as demand remains very strong.”
Copper rods are organised on a rack at a hardware store in Shanghai. Investors are getting less confident that this year’s copper rally will last much longer, even with big producers like Codelco and BHP Billiton painting a brightening picture for global demand.
