Column: Cut funds carry copper bets as China recovery hopes grow : Andy Home

Excavators and drillers at work in an open pit at Tenke Fungurume, a copper and cobalt mine 110 km (68 miles) northwest of Lubumbashi in the copper-producing southern Congo, File. REUTERS/Jonny Hogg

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LONDON, June 7 (Reuters) – The bear’s attack on copper appears to be over for now.

Fund managers have reduced their short positions in CME and London Metal Exchange (LME) copper contracts over the past two weeks as China gradually emerges from lockdowns.

Beijing’s zero-COVID policy hurt both manufacturing activity and end-consumer demand in the first half. But the lifting of lockdowns, particularly in Shanghai, and the shift in policymakers’ focus towards boosting economic growth point to a recovery in the world’s biggest buyer of copper.

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The strength of this recovery, however, remains a hotly debated topic in the industrial metals sector.

This uncertainty is why fund managers have actively reduced short exposure, but do not yet show an inclination to play copper on the long side.

Positioning of Money Manager on the CME HG copper contract


Fund managers are still short on the CME copper contract, but net bearish positioning has been reduced from 17,736 contracts in mid-May to 9,588 according to the latest Trader Commitments report.

All of the action came from short hedging, which in part reflects the symbiotic relationship between price and algorithm-based fund trading.

The LME’s three-month copper rebounded sharply from a low of $8,938 a tonne on May 12 to a high of $9,916 on Monday, stopping bearish short positions along the way.

The collective fund’s short position in London was reduced from nearly 29,000 lots on May 18 to just 11,300, according to LME broker Marex Spectron, which uses its own methodology to assess speculative flows. Expressed as a percentage of open interest, the collective bear bet has been reduced from 20% to 8% in the London contract.

However, there is no evidence that the funds are ready to actively participate in China’s recovery story yet.

Long positions in the CME contract have barely budged in the past month and “limited risk appetite” remains a defining characteristic of copper and other LME metals markets, Marex noted in its daily briefing on Tuesday.


This includes China itself, where market sentiment is teetering with the political tussle between coronavirus containment and economic growth.

The contraction in the country’s manufacturing sector slowed markedly in May, judging by improved results from the official sector indexes and Caixin purchasing managers. Read more

A package of 33 stimulus measures aimed at reviving the economy included more spending on infrastructure, a key driver of end-use demand for copper. Read more

However, the outlook for China’s real estate sector, the other driver of domestic copper consumption, is decidedly cloudy.

The strength of any recovery remains highly uncertain as it will be determined by Beijing’s ongoing battle to contain the Omicron variant of the coronavirus. More lockdowns mean more problems for copper demand.


However, even a moderate recovery in Chinese copper demand through the end of the year could catch up with a domestic market that appears to be physically short of the metal.

Stocks on the Shanghai Futures Exchange (ShFE) fell from a Lunar New Year peak of 167,951 tonnes to 43,347 tonnes.

The ShFE futures curve is shifted to the December 2022 contract, unlike the London market, where the benchmark three-month cash spread is trading around the level.

Domestic supply has stuttered as Chinese foundries struggle with logistics and worker availability during continued shutdowns.

Domestic refined copper production fell nearly 1% in the first four months of this year, according to state research house Antaike.

The physical premium for copper in Yangshan, a closely watched indicator of China’s import appetite, is currently valued at $63.50, down from near zero in March.

Still, China’s net imports in April of 227,000 tonnes were the lowest since August 2021. Exports of 61,000 tonnes, counterintuitive given the arbitrage, were the highest monthly tally since July 2016.

Apparently, many in China itself are still unconvinced of the strength of the rebound to come.


The copper market narrative around China is shifting from bearish to bullish as the country takes tentative steps out of mass lockdowns.

Shanghai’s copper inventory and curve structure suggests a domestic market that is not yet prepared for a significant rebound in demand without a shift in imports.

This is a tantalizing prospect for copper bulls.

But it is clear that the fund community is not yet convinced. Speculative bears could pull back. But the fund bulls are conspicuous by their absence.

The opinions expressed here are those of the author, columnist for Reuters.

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Editing by Edmund Blair

Our standards: The Thomson Reuters Trust Principles.

The opinions expressed are those of the author. They do not reflect the views of Reuters News, which is committed to integrity, independence and non-partisanship by principles of trust.

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