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Copper hits 7-week low as funds, traders cut long positions
[KITCO] Copper prices slid to seven-week lows on Tuesday as traders and funds cut bets on higher prices due to growing nervousness that top consumer China would soon move to curb further price rises.Benchmark copper on the London Metal Exchange was down 3.9% at $9,580 a tonne at 0947 GMT. Prices of the metal used in the power and construction industries have dropped more than 8% since touching a record high at $10,747.50 on May 10. "We are in a soft patch," said Citi analyst Oliver Nugent. "The next leg of the rally will be led by the physical market around the third quarter when the whole supply chain has used up its stocks. Skipping Down SELL-OFF: The sell-off started overnight as Chinese traders came back from a long weekend. Copper prices falling below the 50-day moving average around $9,781 accelerated the sell-off. CURBS: China’s state planner last week renewed its pledge to step up monitoring of commodity prices, as domestic producer inflation hit its highest in more than 12 years. Shanghai Metal Exchange Market (SHMET) and Chinese analysts said China plans to release state reserves of nonferrous metals copper, aluminium and zinc in a programme set to last until the end of 2021. Copper dropped to about $4.32 a pound this AM (6/16 is about $4.35 right now), down from $4.51/lb. last Friday (6/11). Apparently the Chinese just announced that they will be selling portions of their ’Strategic Stockpile’ of Copper, Aluminum and Zinc in efforts to curb prices, and the markets have reacted accordingly. Don’t know how long the new selloffs at lower prices will last, but it will offer some short-term relief for the construction industry. On a further note, the Chinese have NOT started any sell-offs of these commodities to date, so I’m not too excited yet. Keep in mind that Beijing purchased the bulk of these ’stockpile commodities’ in 2019-2020 when they were pretty cheap compared to today so would still be profiting if they sell. It’s pretty apparent that the Chinese are trying to mitigate their domestic inflation rates, not for ’the good of the world’, but as a face-saving move for their population. There has been a lot of anger and dissent by the locals regarding inflation fears that we don’t hear about. The Chinese might also pump hard cash back into the economy to artificially lower inflation (and keep their folks manageable), and that cash has to come from somewhere (see above). My guess is that they might sell off other commodities as well, but are waiting to see how this announcement helps them before they do anything (if at all). They may not even sell off their Copper, Aluminum or Zinc, but rather capitalize by purchasing more at the lowered market costs, making their recent announcement simply a feint to lower their domestic usage commodities costs. The Chinese have been historically famous for saying one thing and then doing something else entirely. They’ve been playing the ’Global Commerce Game’ for over 3,500 years, and they are very good at it. Stay tuned, I know I will be. Posted by: Mullah Richard 2021-06-17 |
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