• The LME three-month copper price is consolidating near recent multi-year highs so far on Tuesday December 22 amid broad risk-off sentiment.
• The momentum indicators have softened but remain supportive overall. The stochastics have crossed lower in high ground and the RSI has rolled lower.
• Above the psychologically important $8,000-per-tonne level, resistance is seen from a series of chart highs from September 2012 to February 2013 between $8,291 and $8,422 per tonne.
• Initial support is seen from the 20 DMA at $7,718 per tonne ahead of $7,509 per tonne, which marks the 61.8% Fibo of the November-December rally. $7,348 per tonne was an area of previous resistance from the first half of 2018.  

Macro drivers
LME copper stocks totaled 122,975 tonnes on December 22, down from 169,400 tonnes at the start of November. Fresh cancellations remain supportive - currently, 45% of stock is booked for removal. The LME cash/three-month spread was most recently in a $22-per-tonne contango. 

Shanghai Futures Exchange copper stocks totaled 74,222 tonnes on December 18, a week-on-week fall of 7,870 tonnes.

Conditions in the copper concentrates markets remain tight and are reflected in the benchmark treatment and refining charges (TC/RCs).

In the physical market, copper premiums into the United States and Asia increased in the week to December 8, reflecting the rising cost of holding and transporting physical material.

Demand factors - including urbanization, decarbonization and the use of electric vehicles (EVs) - will continue to support copper consumption in the medium and longer terms but short-term risks remain because of the economic impact of the Covid-19 outbreak. 

Following our latest revisions, Fastmarkets projects the refined copper market will record a surplus of 556,000 tonnes in 2020 but will tighten significantly to a deficit of around 300,000 tonnes in 2021 once demand rebounds. 

The latest commitment of traders (COT) data shows net long exposure among LME investors increased by 1,528 lots to a record 43,835 lots in the week to December 11 after bullish investors increased their exposure. 

Conclusion
The limited nature of the current correction implies underlying sentiment remains bullish. But in view of the strong price gains and stretched speculative positioning, the risk of a deeper pullback toward the end of the year remains should macro developments trigger broader risk aversion.