Industrial metals: weak October ends with cautious bounce

Our copper monitor above highlights some of the current drivers of the copper market, not least inventories where we are seeing declines following a recent build in global stocks held at exchange monitored warehouses, giving enough support for High Grade copper to bounce from key support in the $3.5450 per pound area and LME copper from around $7850 per tons. Copper supply in China is leading the renewed tightening focus after exchange inventories dropped to a 13-month low, while holdings at bonded warehouses fell to a record low, according to Shanghai Metals Market. The London Metal Exchange which led the recent strong buildup in stocks is now also seeing declines. 

Leveraged funds such as hedge funds and CTA’s have been trading HG copper futures with a negative bias since August, and in the latest reporting week to October 24, the net short saw a small reduction to 17,844 contracts, not far from a 15-month high at 23,000 contracts from May this year, and should the current recovery continue we may see some additional momentum from funds covering short positions. Apart from stocks and speculators we are also watching movements in the Chinese yuan, as well as the forward curve, given the signal it sends about the cost of holding a position. 

The HG copper chart shows how the metal is trying to build an uptrend, which would likely be strengthened on a break above the falling trendline (red line), currently around $3.70. This move comes after several rejections and later bounces from key support at $3.5450. There is, however, strong overhead resistances, most notably around $3.86 where a falling trendline from the January 2022 record peak meets the 200-day moving average. Until that level has been broken, copper will most likely remain rangebound with a cautious bias.