The latest leg in copper’s rally has been driven by a surge in China’s yuan to the highest since July 2018. As the metal rally buyers in the worlds largest commodity consuming nation can afford to pay a higher price. A rising interest rate differential between the dollar and yuan together with China’s continued recovery from their Q1 virus outbreak may continue to support this trend beyond the U.S. election in two weeks time.
It is however interesting to note that the latest rally has occurred despite rising fundamental headwinds. Inventories at exchange-monitored warehouses, especially those controlled by the London Metal Exchange, has recovered to 183,000 tons from a recent fifteen-year low at just 73,500 tons. This development has seen the spot versus the 3-month spread on LME rise to the biggest contango since June, a sign that the market remains well supplied.
Speculators meanwhile returned as buyers of HG copper following what turned out to be a shallow 9% correction in early October. In the week to October 13, the net-long jumped by 15% to 80.5k lots, not far from the late September peak at 87.3k lots which was the highest since early 2018.