Short term: The LME three-month copper price has rebounded off its 20 DMA, suggesting that sentiment is still positively skewed. If the 20 DMA gives way, though, the major significant support level is at the 200 DMA, which is still negatively sloping.
Long term: Copper is still trending higher in the very long term - it is trading above the major UTL and the 200 MMA. Still, monthly momentum is still negative despite the rebound since the start of the year.
Macro and micro drivers
LME copper has made a positive start to the week, rising 0.5%. Risk sentiment is rebounding after a pause last week. Although Chinese credit data surprised to the downside in February, China customs showed that domestic exports rebounded by nearly 40% year on year in the first nine days of March after a 21% fall in February - the largest fall in three years. This eased concerns about a global slowdown.
Chinese copper consumption is subdued at the start of the year, as highlighted by:
In copper's spec positioning, the latest CFTC data shows that copper's net long positioning by non-commercials is no longer light - the net spec length is at 12% of its open interest. Still, there is plenty of potential on the long side considering that the historical high of the net spec length was 44% of its open interest.
Flows in exchange inventories
Global exchange inventories are up on the quarter, pointing to a weaker fundamental picture (assuming no change in invisible inventories).
The ICSG estimates that the refined copper market was in a deficit of 395,000 tonnes in the first 11 months of 2018, including a deficit of 52,000 tonnes in November.
Globally, mine production expanded by 2.4%, refined production grew by 1.6% and apparent usage increased by 2.1% on a yearly basis.
The Chinese refined copper market was in a deficit of 2.9 million tonnes in January-November 2018, with refined production up 3% and apparent usage up 5.5%.
We expect the copper price to continue to push higher in the first half of this year. While the rally in copper prices since the start of the year is driven by stronger macro sentiment (despite weaker macro data) on global monetary policy easing, we think Chinese refined copper demand will strengthen in the coming weeks, resulting in tighter refined market conditions. This should give the copper rally fresh impetus. So we will closely monitor fluctuations in Chinese physical premiums and ex-SHFE price indicators (SHFE spreads, stocks etc).
Trading positioning: We could open a hypothetical long position in LME copper if momentum improves again.
All trades or trading strategies mentioned in the report are hypothetical, for illustration only and do not constitute trading recommendations.