Copper attempting a fresh breakout

China’s import of copper concentrate, used as raw materials in copper smelting, hit a record last month while the level of copper inventories in warehouses monitored by the three major exchanges in London, New York and Shanghai have dropped to 334k tons, the lowest since January.

These developments mean that copper is well exposed to a potential recovery in global growth or increased fiscal spending from governments picking up the baton from Central Banks failed negative interest rate policies.

LME Copper trades back above the important $6000/t level while HG copper has broken a trifecta of resistance as per the chart below. In order for the rally to continue towards the next level of resistance at $2.80/lb and more importantly $3.0/lb we need some additional clarity from the ongoing trade negotiations between China and the U.S.

On Sunday the U.S. is due to increase tariffs by an additional $160 billion on Chinese imports. These will among a big list of goods impact toys and smartphones. The latest pick up in copper prices came after U.S. Agriculture Secretary Sonny Perdue said that the U.S. is unlike to impose these extra tariffs.  

Hedge funds have traded HG copper from the short side since January. It culminated in a record 75,000 lots (850k tons) short back in July before being cut to 18k lots in early November. Since then short positions began to rebuild and the latest Commitments of Trader report from the CFTC covering the week to December 3 showed a 22% increase to 44,500 lots.

The latest rally and breakout is likely to have further reduced short positions. However, the question remains if the outlook has improved enough to see the return of a speculative long position. The outcome of the current trade talks probably hold the key to this question.