Short term: Up
Medium term: Flat
Long term: Up
Resistances:
R1 6,131 40 DMA
R2 6,231 20 DMA
R3 6,298 100 DMA
R4 6,393 Oct 4 high
R5 6,616 200 DMA
R6 7,348 2018 YTD high
Support:
S1 7,177 Oct 2017 high
S2 6,617 200 DMA
S3 6,298100 DMA
S4 6,231 20 DMA
S5 6,232 40 DMA
S6 4,610 YTD low
Stochastics:
Crossed higher in mid-ground
Legend:

BB – Bollinger band
Fibo – Fibonacci retracement level
HSL – horizontal support line
SL – support line
MACD – moving average convergence divergence
DTL – downtrend line
UTL – uptrend line
H&S – head-and-shoulder pattern
RSI – relative strength index



Analysis
  • Copper prices continue to consolidate; they are forming what appears to be a modest symmetrical triangle, suggesting a continuation of the mid-September rally.
  • The momentum indicators remain constructive overall - the stochastics have crossed higher although the RSI at 52 is neutral.
  • The upper shadows on the recent daily candlesticks imply scaled-up resistance above the 20 DMA at $6,232, while gains have been capped by the 100 DMA at $6,132 per tonne and the July 26 high at $6,378 per tonne.
  • Weakness has so far been limited by support from the 40 DMA at $6,132, which has crossed above the 55 DMA, signaling a modest boost in price sentiment.

Macro drivers
Equities have made a mixed start on Wednesday October 24, with markets in Asia reversing initial gains amid expectations China's stimulus plans will revive economic activity. The Flash Markit/Nikkei Japan purchasing managers’ index (PMI) showed manufacturing activity increased to a seasonally adjusted 53.1 in October from 52.5 in September.  

LME copper stocks continue to trend lower because tighter spreads attract limited inflows - stocks total 152,225 tonnes, down from 268,175 tonnes on August 24. The LME cash/three-month spread was most recently in a contango of $1.50 per tonne, compared with a backwardation of $17 per tonne on October 12. Stocks are tightly held, with one entity holding 30-39% of warrants.

In China, Shanghai Futures Exchange copper stocks totaled 140,789 tonnes on October 19, down from a peak of 306,645 tonnes in April. Meanwhile, China’s unwrought copper and copper products imports reached 521,000 tonnes in September, according to preliminary Chinese customs data - the highest since March 2016. Total imports for the January-September period increased by 16.1% year on year to 3.99 million tonnes.

In the physical market, premiums in China dipped slightly due to a sizeable import arbitrage loss. Rates into the United States edged higher due to a temporary shortage of material following vessel delays from South America.

Antofagasta today reported copper production totaled 188,300 tonnes in the third quarter of 2018, up 15.4% on the previous
quarter. Production for the first nine months of the year at 505,500 tonnes was down 4.0% on the same period of last year, however, due to lower grades. Antofagasta narrowed its full-year production guidance to 705,000-725,000 tonnes from 705,000-740,000 tonnes previously, but maintains production will increase to 750,000-790,000 tonnes in 2019.

The International Copper Study Group (ICSG) pegged the global refined copper market in a 47,500-tonne deficit in July and a deeper 155,000-tonne deficit in January-July 2018. Revised forecasts from the ICSG now project the refined copper market to record modest deficits of 90,000 tonnes and 65,000 tonnes respectively in 2018 and 2019.

While in its infancy, the electric vehicle revolution - and the associated infrastructure to support it - is set to bolster demand growth over the long term.

The latest commitment of trader (COT) data showed net length among LME investment funds dropped by 2,716 lots in the week to October 19. Funds cut their long exposure by 2,052 lots while raising their shorts by 663 lots.

Conclusion
Falling visible inventories continue to suggest the underlying fundamentals remain structurally supportive. While prices have room to rally as a result, downside price risks are set to persist in the current macroeconomic climate.


All trades or trading strategies mentioned in the report are hypothetical, for illustration only and do not constitute trading recommendations.