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Much of the investment community has shied away from copper’s sideways jitters over the past year, but after the LME three-month metal jumped to an 11-month high of $9,164.50 per metric ton on March 18, money is now clearly back. Fund managers have rushed to buy copper after the price broke out of its one-year trading range earlier this month.
Trading activity surged on all three major global exchanges, with fund managers placing bullish bets on copper contracts on both the London Metal Exchange (LME) and the CME copper contracts. Market open interest on the Shanghai Futures Exchange (ShFE) has jumped to life-of-contract highs.
Money fund managers’ long positions on the CME copper contract jumped by 43% to 99,829 contracts in the week ended to March 18, according to the latest Commitments of Traders Report (COTR).
It’s the largest outright fund long position since May 2021. The net long position of 39,270 contracts was the most bullish since this time last year, when the market was still pinning its hopes on a rapid growth following the slowdown in China.
In the week ending March 15, long investment fund positions soared to 70,293 contracts. That’s the heaviest cumulative bet on price gains since the LME began issuing its COTR in 2018, suggesting that longs have also flocked to the London market.
Positions in the LME’s ‘other financials’ category, which includes commodity index providers and insurance companies, have also started to turn bullish. Net long positions have risen to 11,693 contracts, a nearly two-year high.
There is no similar COTR in China, but it is clear that the breakout of copper prices above the trading range has caught the attention of the local investment community. Market open interest in Shanghai copper contracts jumped to 566,000 contracts on March 15 from 388,000 at the beginning of the month. Since then, the position has fallen back slightly to 533,000 contracts.
Chinese smelters have sparked all the excitement in the previously torpid copper market by promising to limit production in the event of a tighter-than-expected raw material market.
What exactly this means for the supply/demand balance in the refining segment of the supply chain remains uncertain. Analysts are skeptical about how many smelters will actually cut production instead of rescheduling shutdowns for maintenance or postponing new capacity. However, it has also brought renewed attention to the tight supply dynamics of copper, a feature of the market that has been overshadowed by weak demand conditions over the past year or so.
The recent COTR reflects an increase in long positions before copper prices peaked above $9,000 per ton. Much of the money coming into the market was likely a reaction to the breakout and the resulting upward price momentum.
LME three-month copper has since pulled back all the way to its current level of $8,860 per ton, a key technical level that acted as resistance during the previous year-long trading range, and which the bulls hope will now provide support for a new, higher range.
If the theory of resistance-turned-support levels holds, heavier-weight money will likely follow the shorter-term technical money into the market. However, if copper fails to hold on to its gains and falls back into its original range, some of the new money could disappear quickly. New technical and signs of supply tightness have rekindled the bullish flame for copper. However, these flames could be doused if the market is unable to hold on to its recent gains.
