Copper rolls used for painting are seen in artist Ricardo Moreno’s workshop in San Pedro de Barba, Costa Rica on October 23, 2017.Reuters/Juan Carlos Urate/File Photo Acquisition of license rights
LONDON, Aug 22 (Reuters) – Copper may be embarking on a new energy transition supercycle, but it is currently struggling to escape the gravitational pull of the old Chinese supercycle.
Over the past two decades, China has been a major driver of copper prices as it builds new cities and builds the infrastructure needed to supply electricity.
As China became the world’s factory, domestic demand for industrial metals soared, as did exports of manufactured goods.
The twin engine of China’s once-impressive growth is now stalled as the domestic real estate bubble deflates and high inflation dampens demand for foreign goods.
Three-month copper prices on the London Metal Exchange (LME) have traded between $7,800 and $8,870 per tonne since May as new and old price drivers compete.
The fund’s positioning for both the LME and CME is equally sandwiched between the declining China-centric supercycle and the nascent green supercycle.
chop and churn
Money managers returned to net shorting of CME copper contracts earlier this month in a continuation of the positioning chops that have characterized the market since March.
Net position fluctuations partly reflect copper’s own volatile range trading with many black box funds set up to react to changes in directional momentum.
It is also related to the rise and fall of China’s revival story.
Early-year optimism that the country would recover strongly from last year’s zero-corona restrictions was dispelled by the end of the first quarter.
Since then, copper and other industrial metals have been betting on potential new stimulus from Chinese government policymakers.
The bailout has so far failed to live up to bullish expectations, despite growing groans from the struggling real estate sector.
Money managers have increased their outright short positions in CME copper to 69,707 contracts, a collective bear bet on the biggest price drop since early 2020.
Long positions fell to 51,580 contracts in the week ending August 15, after peaking at 63,957 contracts the previous week, the first time in six months.
A net short position of 18,127 contracts shows that the bears have the upper hand.
bullish and bearish
Bulls have the upper hand in London, where investment funds are net long 14,143 contracts in the London copper market as of Aug. 11 closing.
But with money managers stepping up their bets, both bullish and bearish, they are equally confused about copper’s next big direction.
The outright buy positions held by investment funds reached 47,541 contracts on August 11, the heaviest bear commitment since the LME first began publishing trade commitment reports in 2018.
However, the bullish view also fell to 61,724 contracts in the last reported week after hitting a new high of 67,583 contracts the previous week.
Fund managers of all colors have seen simultaneous bullish and bearish peaks in the first half of the month.
“Other financial” players, including index managers and insurers, are in the middle, with a marginal net long position of 3,911 contracts.
Waiting for liftoff or breakdown?
A key takeaway from speculative positions in both the US and London markets is that fund players are betting more on copper.
The recent accumulation of both short and long positions suggests that the fund is taking positions ahead of any breakout from its recent trading range.
However, there is no consensus on whether copper prices will break upwards or downwards.
Which is more important: the old cycle or the new cycle?
China’s real estate problems are piling up, with developer Country Garden in financial trouble and Chong Rong International Trust Co.’s investment products being delayed in payments, and the risk of spillovers to China’s $3 trillion shadow banking sector. It is embossed.
Aggressive countermeasures in the form of increased copper use in energy transition applications as both the U.S. and Europe turbocharge the renewable energy networks needed to support electric vehicle sales and the shift away from fossil fuels. is brought.
Dr. Copper can’t seem to decide which supercycle is currently the strongest.
The same goes for fund managers.
The opinions expressed here are those of the author, a Reuters columnist.
Our criteria: Thomson Reuters Trust Principles.
Opinions expressed are those of the author. They do not reflect the views of Reuters News as committed to honesty, independence and freedom from bias based on trust principles.
