Mines: as copper price stagnates, investors are betting on other markets
The funds reduced their collective bullish bets on rising copper prices as the scorching rally shows signs of stalling. London Metal Exchange (LME) copper hit an almost 10-year high of $ 9,617 per tonne last month, when the price more than doubled from its March 2020 low.
However, copper then flipped sideways in often volatile and low liquidity conditions, with the three-month LME metal currently trading around the $ 9,100 level.
Many of those who entered at the start of the rally obviously decided to take profits, with the fund’s long positioning on the CME copper contract falling sharply this month.
Investors have been drawn to other markets, particularly a booming energy sector, but the outflow also reflects suspicion of the potential for a major correction as the short-term view of the market is starting to sound a little less optimistic.
As of Tuesday, fund managers were collectively net along the CME copper contract to the tune of 44,570 contracts.
The collective bullish bet almost halved in the space of a month from a February 14 high of 87,671 contracts and is now back to levels last seen in July of last year, when the copper rally was in its infancy.
The change in positioning of the portfolio manager is mainly due to a reduction in long positions, from the three-year high in February of 118,463 contracts to the current 78,448.
Direct shorts have only increased slightly over the same time frame, suggesting that few of them are still bold enough to take a totally contrarian stance on the bullish copper narrative.
The CME contract is heavily populated with black box type funds that track price dynamics, so it’s no surprise to see some come out as price action becomes more ambiguous.
But the magnitude of the reduction suggests that technical signals are not the only driver.
The same goes for LME broker Marex Spectron’s assessment that the speculative duration of the LME contract has dropped from 62% of open interest at the end of February to around 36%.
For several weeks, Marex has highlighted the rotation of investment money from metals to other sectors, energy in particular.
But copper has not been helped by changes in its own micro-dynamics, particularly the recent build-up of visible stocks.
