Copper looking stretched as it continues higher — #SaxoStrats
- HG Copper hits three-year high
- HGZ7 future targeting $3.29/lb
- Futures spreads remain in contango
- The introduction of clean air policies have removed smelter capacity in China. This has helped create a major buzz around the most impacted metals of aluminum and zinc.
- The latest rally kicked off around the time the Chinese yuan began strengthening against the US dollar back in May. It could turn out to be a temporary show of strength ahead of the 19th Chinese Party Congress beginning October 18.
- Much has been made out of the relative bigger usage of copper in electric vehicles than in normal combustion engines. This will become an important source of additional demand but not yet big enough to have a meaningful impact.
- Falling inventories monitored by exchanges outside China as arbitrage opportunities has moved copper to China.
- Bullish fund bets have reached a record high and in the process have dislocated from the otherwise decent correlation to China Manufacturing PMI.
- China leading indicators (Nomura’s) have been pointing lower since April, during which time copper has rallied by more than 15%.
- RSI shows the price is overbought on all three time periods out to 30 days.
- A near-balanced refined copper market in 2017-18 combined with expectations of a rebound in mine supply from major suppliers in Chile and potentially Indonesia
- Futures spreads remain in contango which should not be the case if consumers were worried about the availability of supply.
— Edited by Michael McKenna