Copper Hugs Trendline Support as Market Conditions Remain Tight

• Copper price continues to trend lower, testing trendline support ant 50-day moving average

• Global stockpiles of copper remain low, potentially making outright short positions more risky

• China’s economic slowdown has dented global demand for metals, putting price under pressure

Copper prices continue to slide lower as fears mount over a prolonged economic slowdown in China. Surging commodity prices and stresses in the property sector have hampered economic activity in China, in turn putting pressure on demand for metals. Factory shutdowns across mainland China have significantly slashed global demand for metals, with copper down roughly 9.5% from the October swing high. Chinese PMI data for October showed the second consecutive monthly contraction, yet another worrying signal that the domestic economy has applied the handbrake.

Despite a deteriorating macroeconomic climate, copper price has failed to make a material break below trendline support. Major exchanges have failed to replenish supply, meaning that the market remains tight even as global growth slows and demand disappears. Despite this, stockpiles in Shanghai total less than 50,000 tons, perhaps making market participants wary of shorting copper. Tighter than expected supply across the globe’s major exchanges may continue to buoy prices, potentially offsetting the drag from the current macro climate.

COPPER FUTURES DAILY CHART (FRONT MONTH, COMEX)

Despite the drawdown from the October swing high, traders appear reluctant to short front-month copper futures outright. According to data from the CME Group, money managers are outright short a total of just 29,721 contracts, while outright long positions rose to a 5 month high of 82,538 contracts. Price also finds itself in a unique spot, testing the 50-day moving average. Despite tight supply conditions globally, price may continue to trend lower unless global economic activity picks up.

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