Why Copper Surges Recently? Will Rising Momentum Sustain? SMM Reports

SHANGHAI, Nov. 8 (SMM) - Copper prices jumped November 8 following a surge in other commodities recently. SHFE 1701 copper closed at 40,380 yuan per tonne, up 3.04%. Leaving of hedge investors accelerated price gains.

What’s behind the sharp gains in copper?

There are several reasons for the precipitous increase in copper, SMM said.

Total copper inventories on the SHEF, COMEX and LME slid 15% from mid-September. Those on the LME fell nearly 20%. This eased concerns over oversupply after a big growth in LME copper inventories since late August, which had curbed copper prices.

After Hillary Clinton email investigation, the likelihood of her winning the election decreased significantly at one point. The US dollar thus slumped due to risk aversion, and in turn bolstered copper prices, SMM added.

Inflation on the heels of yuan’s devaluation also drove up commodity prices. Yuan weakened rapidly after its inclusion in the Special Drawing Rights (SDR) October 1. Market expects yuan to weaken further to 7.0.

Bullishness in other markets, including steel, coke, coking coal, aluminum and zinc, also buoyed copper. Sluggish stocks market and restrictions on real estate investment drove some capital into commodity market, SMM explained. Now that other commodities have been inflated, capital flew to copper.

Recently, major economic data from China and US were better than expected, helping alleviated market pessimism.

Besides, the copper industry suffered from losses in 2015. But market mindset was better this year. China’s growth stabilized around 6.7% in the first three quarters of the year, boosted by property and automobile markets. GDP grow will be unlikely below 6.7% in Q4. Copper prices are still far from the highest of last year.

Meanwhile, CFTC reported fund net longs on copper increased 25,052 to 11,000 as of November 1. Fund long positions decreased 2,266 to 88,669, and fund short positions were down 27,318 to 77,371. COMEX fund net longs reached the highest for the year.

If LME copper climbs to $5,100 per tonne and stabilizes at this level, prices may rise further to $5,350 per tonne in the near term, SMM predicts.

Copper will be greatly affected by technical and capital factor in the foreseeable future, SMM said. The relevance between copper and fundamentals will be limited. Market sentiment now improved noticeably after SHFE copper consolidated at lows for over five years. 

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