With the copper market falling from the $4.045 summer high to the October low of $2.05, it would certainly seem like the market was moving to factor in a sustained recession and perhaps even a rapid build-up of global copper supplies. Certainly, news that the International Copper Study Group was predicting a surplus of 100,000 tons for 2008 and an even more significant surplus of 277,000 tons in 2009 confirms that the copper market was entrenching very bearish expectations into market sentiment and prices.
Copper COT with Options
However, a couple of factors suggest to us that copper prices are not setting up for a sustained Copper downtrend pattern ahead. In fact, with the most recent COT positioning report showing the combined “net” spec and fund short positioning of 23,403 contracts and the December copper futures falling another 48 cents per pound below the level where the positioning report was compiled, we suspect that the copper market reached a new record spec short positioning in the mid October washout. With overall macro economic sentiment into the October low possibly reaching the most stressed level since the inception of the trade in copper, one could suggest that the October 10th low of $2.05 per pound was the result of coinciding fundamental and technical extremes.
Shanghai Copper Stocks
Certainly a global contraction in the housing and auto sectors will serve to crimp demand in copper rather significantly, but the real key to copper prices over the coming months might continue to rest more with the actual pace of the Chinese and Indian economies than the state of the US and European economies. In fact, while LME copper stock inventories have steadily risen off the egregiously low levels seen at the end of 2005, LME stocks as of October 13th were still only 1/5 of the peak levels seen in April of 2002. Another important thing to note is that Shanghai deliverable copper stocks also reached a peak back in 2002 of roughly 248,000 tonnes but as of October 10th they were at a paltry 25,600 tons. In short, world copper stocks remain very tight, and therefore the direction of the Chinese economy could become the most important force driving copper prices in the near term. In the near term traders should expect a temporary but sharp slide below the $2.00 level before the market reaches some form of solid value zone.
Copper Headed Lower?
by Dave Hightower on October 20, 2008
With the copper market falling from the $4.045 summer high to the October low of $2.05, it would certainly seem like the market was moving to factor in a sustained recession and perhaps even a rapid build-up of global copper supplies. Certainly, news that the International Copper Study Group was predicting a surplus of 100,000 tons for 2008 and an even more significant surplus of 277,000 tons in 2009 confirms that the copper market was entrenching very bearish expectations into market sentiment and prices.
Copper COT with Options
However, a couple of factors suggest to us that copper prices are not setting up for a sustained Copper downtrend pattern ahead. In fact, with the most recent COT positioning report showing the combined “net” spec and fund short positioning of 23,403 contracts and the December copper futures falling another 48 cents per pound below the level where the positioning report was compiled, we suspect that the copper market reached a new record spec short positioning in the mid October washout. With overall macro economic sentiment into the October low possibly reaching the most stressed level since the inception of the trade in copper, one could suggest that the October 10th low of $2.05 per pound was the result of coinciding fundamental and technical extremes.
Shanghai Copper Stocks
Certainly a global contraction in the housing and auto sectors will serve to crimp demand in copper rather significantly, but the real key to copper prices over the coming months might continue to rest more with the actual pace of the Chinese and Indian economies than the state of the US and European economies. In fact, while LME copper stock inventories have steadily risen off the egregiously low levels seen at the end of 2005, LME stocks as of October 13th were still only 1/5 of the peak levels seen in April of 2002. Another important thing to note is that Shanghai deliverable copper stocks also reached a peak back in 2002 of roughly 248,000 tonnes but as of October 10th they were at a paltry 25,600 tons. In short, world copper stocks remain very tight, and therefore the direction of the Chinese economy could become the most important force driving copper prices in the near term. In the near term traders should expect a temporary but sharp slide below the $2.00 level before the market reaches some form of solid value zone.
Tags: Copper, Featured, Metals
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