Copper Plunges As Demand Falls, Risk Of Supply Glut Rises – Short Positions Encouraged
Copper has been in a slump for the most part this week, collapsing nearly 4% after reaching a weekly high at $2.2018 per pound on Monday. The copper market is forecast to witness more declines as it is going to be confronted with a significant supply glut and dropping demand in the coming months.
Copper witnessed the biggest one-day loss on Thursday since June 07th, after the Chinese General Administration Customs reported worse-than-expected export-import data for September. According to the report, Chinese exports declined by 10% in September from a year earlier while imports also witnessed a decline of 1.9%, which spurred concerns over weak demand for goods both in China and many other parts of the world such as the U.S., Europe and much of Asia.
Demand for copper imports in China was also reported to decelerate last month to the lowest in more than a year. Chinese copper imports of fell by 26 percent from a year ago to 340,000 tons in September, which is the lowest since August 2015. On a monthly basis, copper imports into China – which is one of the world’s leading copper consumers dropped by 2.9%.
On the supply side, commodity analysts at Goldman Sachs said that considering the rise in supply, copper prices would be under downward pressure over the next three to six months.
In a separate report by BMI Research, the research firm forecast Iran’s mining industry will resurge after years of Western sanctions. According to BMI, foreign investment will help accelerate output in Iran’s mining sector as the Middle-Eastern nation possesses vast, but underdeveloped reserves of copper. The sector however is still looking for investments into modernization and new technology.
Iran’s copper output is expected to outperform in the coming years and reach a growth rate of 13% each year to reach an output level of 500,000 tons by the end of the decade.
Fig: COPPER D1 technical chart
In a week, copper has breached through two important Fibonacci levels – the 38.2% and 50.0% , to fall as low as 2.1120. The price action also has also crossed below both the long-term DMA50 and short-term DMA20 from above. The market is under pressure from two MAs placed overhead, and the overwhelming strength of sellers in the market. Copper prices are approaching the 61.8% handle at 2.0860. The RSI is also heading towards bearish territory, providing further confirmation for the down-move.
Sell Stop at 2.1120, Take profit at 2.0860, Stop loss at 2.1400