COPPER could have another shave off another further $200-300 (3%-4%) per ton as stock piling increases and jitters around Chinas manufacturing gauges. The metal has slumped 4.7% this week despite still trading 19% percent this year to $USD6,564 a metric ton on the London Metal exchange. The increase in stock piles have been on the back of investors holding long positions as they bet on the price rising higher but this has had impact of lowering the price in over time. Factors waning the metal price lower include:
Copper inventories held in global exchanges remain stubbornly high, even after heavy disruptions to supply from mines in Chile and Indonesia at the start of the year. A large inflow on to the London Metal Exchange was a catalyst in Tuesday’s rout, as it sent a reminder that the market isn’t short of metal.
The forward price curve also signals that loose supply conditions may persist in the coming months. Benchmark three-month copper prices are trading at a discount to forward contracts expiring at later dates, a condition known as a contango that’s common in oversupplied markets. That contrasts with zinc, where buyers are paying significant premiums for nearby contracts amid prospects of a supply squeeze.
Synchronized global growth has been a key driver for industrial metals this year, but concerns are mounting that China’s crackdown on its property market will be a headwind going forward. Physical delivery premiums covering the cost of shipping copper to top user China have been subdued this year, suggesting that the country’s buying needs aren’t placing a strain on supply.
Copper’s recent selloff has also been partly driven by concerns about a large long position that accumulated in Shanghai Futures Exchange contracts in recent months, Nicholas Snowdon, a metals analyst at Standard Chart said.
Investors are questioning how and when the position will be unwound and have grown cautious about putting on their own bullish bets. The sharp swings in prices seen during Shanghai Futures Exchange – SHFE trading sessions on Tuesday this week suggests that the position is now being unwound, Snowdon said, adding that that could add to short-term pressure on prices.
The current price supports copper producing nations such as Zambia, DRC, Chile and Venezuela who are heavily dependent on the red metal for export revenues. Zambia projects to produce 850,000 metric tons this year and is on course to regain its slot as Africa’s top copper producer. The Southern African nation intends to increase produce its productivity to 1million metric tons by 2021 to be in the world’s top 4.
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