Copper Joining The Metals Sell-Off As Supply Builds – Short Positions Favourable

Copper snapped a three-day losing streak on Thursday, but the gains are considered to be  a short-lived correction, as grey clouds are hovering over the copper market. While demand from China, the world’s biggest producer and user of refined copper is sharply slowing down; copper supply, on the other hand, is rising as new miners are ramping up activity.

China’s imports of copper skid by 3 percent, partially due to low-season demand as many factories close over the course of the northern hemisphere summer. The world’s top user trimmed its imports to the lowest level in the last 17 months. According to Chinese customs, purchases of refined copper in July fell for a fourth consecutive month to 251,235 metric tons from 305,304 tons in a month earlier.

Another reason why China’s imports of refined copper dropped to the lowest since February 2015 is due to rising domestic production, which jumped by 9.6 percent in July from a year ago to 722,000 tons. To pare down the record-high stocks being held, the country has been pushing up exports. As a result, July exports soared 76 percent from June.

Inventories tracked by the London Metal Exchange have surged 21 percent over the past three days to 14,625 tons – the highest since November 2015. Even though the copper market has already fallen into a surplus, production seems resilient and shows no signs of being cut back.

Glencore has upped its guidance on its production levels, after slashing production by 4 percent in the first half of 2016. Given the strong performance from a number of its mines, including Collahuasi in Chile, the Switzerland based group updated its output forecast to between 1.41 million tons and 1.43 million tons this year, up 20,000 tons from its previous estimates.

On top of all these concerns is the soaring supply from new mines in Peru. Copper production and supply from new Peruvian mines rose by more than a half to nearly 714,000 tons in the six-month period through June 30. Particularly, Freeport’s Cerro Verde pumped out 260,000 tons and is projected to add another 270,000 tons annual production capacity at the mine. Besides, Chinese-backed MMG’s Las Bambas mine is reported to produce 118,612 tons of copper in concentrate form. MMG maintained its 2016 output guidance at 250,000 – 300,000 tons and 400,000 tons in 2017.


Fig: COPPER D1 technical chart

In general copper is trading in a price range from 2.0000 to 2.3100 from the beginning of 2016. Since mid-July, the commodity has fallen into a downtrend and broken through three key levels – the 23.6% retracement at 2.1725 and the two moving averages. The market pulled back today after peeking out of the recent trading range and retesting the one-month low at around 2.0800. This level had offered considerable support previously and the market had witnessed a pushback from these lows in April. As the short-term MA has crossed over the 50-day MA from above, the price can be expected to resume its slide and fall further.

Trade suggestion

Sell Stop at 2.0795, take profit at 2.0375, stop loss at 2.0950

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