Copper In A Meltdown As Supplies Pile Up All Around

Last Wednesday, data from China reported that imports of copper edged up 19.4% to a total volume of 430,000 tons in May, compared with the same period one year earlier. For the first five months of 2016, China’s copper concentrate imports advanced to 6.7 million tons, rising 34% on a yearly basis. A strong increase in copper imports by volume has had a significant impact on the market. At the start of the second quarter of this year, total exports from China reached a two-year peak of 32,000 tons, bringing the year-to-date total to 75,500 tons.

Meanwhile, cash copper’s premium over the forward contract has retreated to a three-and-half month low, down more than 2% and hitting a low of $4,585 per ton. This has happened due to fresh supplies of 43,000 tons of metal arriving into the warehouses of Asian Commodity Exchanges.

The London Metal Exchange on June 09 also reported that the inventory hit a record high since February to hit a record level of 213,225 tons.

The week ending on June 10 was a tough one for copper bulls due to the negative data from around the globe on the supply side. However, the commodity has opened this week with an up-move, thanks to a softer US dollar, ahead of the FOMC meeting on June 15. Markets are pricing that the US central bank is not likely to raise its benchmark rate even in July, as a slowdown in the US labor market has raised some red flags. The dollar index has been testing the support at 94.44 today, down 22 points from its last close.

copper d1

Fig. COPPER D1 Technical Chart

COPPER is inching up slightly from a four-month low of 2.0095, which was formed on Thursday. The Stochastics chart shows that the %K line (blue line) has already crossed over the %D line (red line), in an attempt to get out of oversold territory. The commodity is expected to mount a corrective bounce back in the short-term and may resume its downtrend thereafter, as indicated by the trend indicator.

Trade suggestion

Sell stop at 2.0314, Stop loss at 2.0588, Take profit at 1.9975

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