Copper bears having trouble convincing everyone to hibernate
November 21 2017 10:18 PM
Copper rods are organised on a rack at a hardware store in Shanghai. Copper is on pace for its biggest annual gain since 2010 amid a shrinking global surplus that’s forecast to turn into a deficit by 2019.

Bloomberg/New York

Hedge funds are sounding the alarm bells on this year’s copper rally, but not everyone is listening.
Money managers cut their wagers on a rally for a third straight week, reducing their holding to the lowest in almost four months. But traders have managed to push prices higher, loading up on bullish options contracts on Friday.
The tug-of-war has one underlying source: China. Mixed economic data has left investors unsure about demand prospects in the country, the world’s top metals consumer. 
Copper is on pace for its biggest annual gain since 2010 amid a shrinking global surplus that’s forecast to turn into a deficit by 2019. 
It’s this view that’s leaving some traders hopeful even as data last week showed China’s economic expansion dialled back a notch in October. Money managers cut their copper net-long position, or the difference between bets on a price increase and wagers on a decline, by 6.8% to 79,921 futures and options contracts in the week ended November 14, according to US Commodity Futures Trading Commission data last week. That’s the lowest since mid-July. By contrast, prices rose 0.5% in the week ended on Friday to $3.091 a pound, the sixth gain in eight weeks. The metal was at $3.08 on Monday.
Here’s what traders are watching:
Seasonal move: An unprecedented environmental clampdown in China is making a significant mark on nationwide metals production, with aluminium output collapsing and steel becoming subdued.
There’s some speculation that the crackdown could be signalling a wider slowdown for industrial demand in the country. That’s clouding the outlook for metals consumption, Stephen Gill, a managing partner at mining-focused firm Pala Investments in Zug, Switzerland, said in an interview at Bloomberg News headquarters in New York.
“Curtailments confuse people in that they suggest it is a demand impact,” Gill said. “But in this case, it’s balanced with a withdrawal of supply, and purely a seasonal winter move,” he said. “I could see the next four months as the best buying opportunity for 2018.”
Metal premiums: Copper premiums, or the amount added to the exchange-traded price to deliver the metal, being set for next year’s annual contracts suggest a more favourable demand environment ahead. Codelco, the world’s biggest producer, is set to maintain its fee for physical delivery to the US, according to people with direct knowledge of the matter. That would end at least four years of declining premiums, suggesting buying is healthy. 
The miner is said to have offered to sell to European customers at a higher premium for the first time in years.
China outlook: China is readjusting its growth goals to focus on quality instead of quantity, as President Xi Jinping last month dropped a commitment made by his predecessor to double the size of the nation’s economy. 
The change could have an impact on copper-dependent growth across the country, which in October saw industrial output rise less than anticipated.
“The bear case for copper would be that there is a deliberate slowdown in Chinese industrial activity that is by design,” said Quincy Krosby, the chief market strategist at Prudential Financial, which manages about $1.3tn in assets. “But the fact of the matter is it’s jumping to conclusions that the Chinese want to slow down growth.”

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