London: Doctor Copper is ending the year on a high note.
Funds have been covering back short positions and building new long positions as bank analysts turn more positive on copper’s prospects for next year.
The trigger for Doctor Copper’s resurgence was the announcement of a “Phase One” trade deal between the US and China. The deal is still somewhat nebulous and no-one seems sure whether there will be a “Phase Two”, but, to quote Goldman Sachs, there is a sense that “US-China tariffs have peaked”. (“Macro at a Glance”, Dec. 18, 2019).
That in turn, it is hoped, will help reinvigorate stuttering demand from China’s manufacturing sector.
All the LME base metals complex should benefit from the weakening of the trade and demand headwinds but, according to JPMorgan, “copper continues to provide the cleanest story for those who are upbeat about global growth in 2020”. Funds have been holding a large collective short position on the CME copper contract for much of this year, using Doctor Copper as a proxy for trade war negativity.
That big short has been pared back significantly over the course of December.
As of last week the net fund short had shrunk to 13,314 contracts, the smallest it’s been since May. Outright short positions have fallen to 73,382 contracts from an August peak of 118,448, while long positioning has jumped to 60,068 contracts from 41,488 at the start of December. Given the subsequent extension of copper’s rally, it’s probable that the net short has contracted further.
The same pattern of fund turnaround has been playing out on both the LME and the Shanghai Futures Exchange (ShFE), according to analysts at Citi. (“Metals Weekly,” Dec. 19, 2019). “Copper open interest has increased notably across each of the three main exchanges (LME/Comex/ShFE) and is in aggregate up by around 1.3 million tonnes over the past month – a pace not seen since the 2016 US presidential election,” according to Citi.
Source: Economic Times
