Very short-term (1M):  Flat 
Short term (3M): Flat
Medium term (6M): Flat
Long term (12M): Flat
R1 6,545 Apr 2019 high
R2 6,540 Fed 2019 high
R3 6,730 61.8% Fibo
S1 6,295 Mar 21 low
S2 6,289.5 Feb 2019 high
S3 5,725 Jan 2019 low

BB – Bollinger band
DMA – daily moving average
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

  • After the sell-off on Monday April 1, technical support has been found at the 20 DMA. 
  • Fresh buying pressure has emerged off this technical support level, halting the selling momentum for now. 
  • But with the upside capped by the March 2018 low (see chart), the risk is still to the downside.
  • The daily RSI and stochastic lines are failing to provide much of a directional bias.
Macro drivers
Reports that the United States US and China are moving closer to a trade agreement have fueled global risk-on sentiment. Asian equity indices charged higher, with the China CSI300 index up 1.24%, the Hang Seng up 1.01% and the Nikkei up 0.97%. Bullish sentiment has spilled over to the base metals but key to the current rally is not to let sellers re-engage - if they do, the complex may run into fresh profit-taking.

Speculative selling interest intensified among LME and Comex fund managers. On the LME, the net short fund position (NSFP) grew to 720 lots in the week to March 29 after 101 lots of selling. On Comex, the net long fund position (NLFP) now stands at 1,942 contracts, down from 31,256 contracts early in March. Given the bearish sentiment among speculators, the elevated LME copper price looks increasingly vulnerable to further downside pressure. But failure to turn lower could force short-sellers to cover their bearish bets, providing a boost to the copper price.

The heavy rewarranting in March 2019 has pushed total cancelled warrants lower too, easing the the previous bullish pressure from improved physical demand. On paper, the rise in LME stocks by 27% so far this year to 167,950 tonnes looks negative, as does the 120% increase in SHFE stocks to 261,412 tonnes as of March 29.

Following the news that miner MMG has declared force majeure on its copper supply contracts from the Las Bambas mine in Peru, copper smelters have had to turn to the spot market to secure copper concentrate. This contributed to the slump in copper treatment and refining charges (TC/RCs). Based on Fastmarkets' most recent assessment, the spot copper concentrate Asia-Pacific TC index was $69 per tonne on March 15, its lowest since April 2018.

The International Copper Study Group recently estimated the deficit in 2018 at 387,000 tonnes, an increase of 46% from 265,000 tonnes in 2017. We expect the shortfall to grow if the macroeconomic backdrop continues to improve in the second quarter of 2019. 

As long as LME copper remains below the horizontal resistance line off the March 2018 low, we foresee sideways trading with a downside bias in the short term.

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