Copper up 20% and at a crossroad

Commodities 5 minutes to read

Ole Hansen

Head of Commodity Strategy

Summary:  HG copper has now rallied by close to 20% since the March collapse. In the process it has reached key resistance at $2.50/lb. A break may attract fresh buying, not least from hedge funds who have only just managed to reduce their exposure from short to neutral


What is our trading focus?

COPPERUSJUL20 - HG Copper

____________________________________________________________________________________________________

HG Copper continues to challenge key resistance around the $2.50/lb. The general risk-on currently sending most asset classes higher and gold and Japanese yen lower, has together with the steady revival of copper-intensive activity in China and the weaker dollar been supporting the rally.

Hedge funds according to my weekly COT update have only just returned to a neutral position and they are likely to start rebuilding a long position on a break above the mentioned level. A level which coincides with a 20% recovery and with a break attracting media comments about copper having returned to a bull market.

03OLH_copper1
Source: Saxo Group

From the peak of despair in mid-March exchange-monitored copper inventories have declined by 165,000 tons or 26%. While COMEX in New York and LME in London both have seen rising inventories, the reduction has all come from China where stocks monitored by the Shanghai Futures Exchange have dropped by 235,000 tons or 62%.

Economic data from China has improved but we remain skeptical that the reduction has only been driven by industrial demand. Recent reports from China have shown renewed demand from commodity traders hoarding tangible assets such as metals. Whether the hoarding is driven by speculation about a weaker currency or other economic developments remains unclear. It does however create the impression of increased demand with stocks being moved to unmonitored warehouses.

03OLH_copper2

Disclaimer

The Saxo Bank Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website. This content is not intended to and does not change or expand on the execution-only service. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.

Please read our disclaimers:
Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
Full disclaimer (https://www.home.saxo/legal/disclaimer/saxo-disclaimer)
Full disclaimer (https://www.home.saxo/legal/saxoselect-disclaimer/disclaimer)

Trade responsibly
All trading carries risk. Read more. To help you understand the risks involved we have put together a series of Key Information Documents (KIDs) highlighting the risks and rewards related to each product. Read more

This website can be accessed worldwide however the information on the website is related to Saxo Bank A/S and is not specific to any entity of Saxo Bank Group. All clients will directly engage with Saxo Bank A/S and all client agreements will be entered into with Saxo Bank A/S and thus governed by Danish Law.

Apple and the Apple logo are trademarks of Apple Inc, registered in the US and other countries and regions. App Store is a service mark of Apple Inc. Google Play and the Google Play logo are trademarks of Google LLC.