NewsHow Copper Is Defying Weakness in China to Make A Serious Bull...

How Copper Is Defying Weakness in China to Make A Serious Bull Run

Alex Kimani

Alex Kimani

Alex Kimani is a veteran finance writer, investor, engineer and researcher for Safehaven.com. 

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By Alex Kimani – Apr 25, 2024, 6:00 PM CDT

  • Last week, copper prices soared to a two-year high just shy of $10,000 per ton.
  • China’s refined copper imports are up 20% in the year-to-date.
  • Citi has predicted that copper prices could skyrocket to $12k/t over the next three months.

Copper

The entire base metal complex has been bullish in the current year, led by a 37% surge by tin and 17% by copper despite a weaker Chinese market and the U.S. dollar strengthening against major world currencies. Last week, copper prices soared to a two-year high just shy of $10,000 per ton largely spurred by a combination of positive investor interest–as evidenced by increasing bullish positions in Comex futures–and supply concerns due to mine-supply downgrades.

Still, the Chinese market continues to send mixed signals. On one hand, macro indicators (apart from the still-depressed housing market) have picked up. To wit, China’s GDP grew 5.3% in the first quarter, beating the analysts consensus at 4.8% and much better than 1.6% growth posted the previous quarter. 

Meanwhile, China’s refined copper imports are up 20% in the year-to-date. On the other hand, copper inventories at the Shanghai Futures Exchange (SHFE) have continued to build and recently hit their highest since the pandemic-related highs of April 2020. Further, copper spot premiums are still soft, while the Yangshan copper imports premium has dropped to historical lows, reflecting weak spot demand conditions.

The latest Commitment of Traders (COT) report by the CFTC reveals that net managed-money copper futures positions in the week ended 16 April built by a further 3.8k lots (after rising by 33k lots in the previous week) to 47.1k lots–their highest since October 2021. 

The LME cash to three-month contango has narrowed over the past week, having previously hit a historical high of $135/t and averaging $117/t in the first half of April. However, LME copper inventories remain relatively low overall. At 120.6kt, copper inventories have built modestly from the recent low of 106.7 kt on 19 March, their lowest since September 2023. 

In contrast, SHFE copper inventories have posted successive w/w builds for the past four weeks following their first (and only) post-Lunar New Year drawdown so far in 2024. SHFE copper inventories climbed by 322 tons to 300 kt in the week ended 19 April and are currently at their highest since April 2020.

Global copper supplies have come under pressure as Chinese smelters approach their regulatory approval to cut output, compounded by a supply shortage resulting from disruptions in key mines across major producing regions, especially in Zambia. Meanwhile, the U.S. and the UK have prohibited metal-trading exchanges from accepting Russian copper, aluminum and nickel.

Wall Street Bullish On Copper

Thankfully for the bulls,

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