Fund managers retain faith in copper

Copper’s super-charged rally to a CME peak of 5.20 US cents per pound and an LME high of US$11,404.50 per tonne has made it the star attraction. — Reuters

THE vicious squeeze on the Chicago Mercantile Exchange (CME) copper contract appears to have largely passed, but fund managers are sticking with their bullish convictions on both US and London markets.

There has been some light profit-taking as the price has retreated from last month’s record highs but fund long positioning remains elevated both on the CME and London Metal Exchange (LME).

The money surge into copper is part and parcel of a broader rotation of funds into the base metals sector, but copper’s super-charged rally to a CME peak of 5.20 US cents per pound and an LME high of US$11,404.50 per tonne has made it the star attraction.

However, Doctor Copper’s new investor friends may find their bullish resolve tested in the days ahead.

With the short-covering momentum on the CME contract now abating, fund longs are left waiting for fundamentals to catch up with their price expectations.

Fund managers trimmed their long positions on the CME copper contract by 7.4% over the week to May 28, according to the latest Commitments of Traders Report (COTR).

However, bets on higher prices amounted to a hefty 128,344 contracts, which is still the largest bull commitment since January 2018.

The net collective long position is lower at 63,787 contracts. There has been no short capitulation. Indeed outright money manager short positions edged up by 2% to 64,557 contracts.

However, it’s clear that the bulk of the recent investment flow remains sitting on the long side of the market.

The situation is similar in London, where the record investment long position shrank only marginally in the week to May 20. At 105,262 contracts, it is still by some margin higher than anything seen since the LME launched its own COTR in 2018.

The upwards price momentum has faded as the CME squeeze has steadily dissipated, LME three-month metal currently consolidating just above the US$10,000 level.

There remain pockets of tightness across nearby CME time-spreads but the immediate panic appears to be over and the cash premium over the London contract has shrunk from over US$1,000 per tonne in the middle of May to around US$250.

Short positions have either been covered or rolled with a view to delivering physical copper.

The explosion in the arbitrage with the LME is expected to draw metal to CME warehouses in the United States. — Reuters

Andy Home is a columnist for Reuters. The views expressed here are the writer’s own.