Silver and copper in focus after recent declines

Copper meanwhile remains rangebound with China growth concerns being offset by speculation the Chinese government will have to do more to support an ailing economy, and not least the prospect for a tightening market outlook as the green transformation continue to gather momentum and miners cutting their production forecasts as they being challenged with harder-to-mine deposits, rising costs, water restrictions and increased scrutiny of new permits.

Industrial metals have generally posted a weak start to the year as the outlook for global and not least Chinese manufacturing and construction activity still is under scrutiny, for now more than offsetting calls for stronger stimulus measures in China, and the potential positive impact of restocking once an expected series of rate cuts from major central banks begin later this year. The Bloomberg Industrial Metal index trades down around 4% on the month with losses being led by aluminum and zinc while copper, for the above-mentioned reasons has managed to limit the losses, despite some recent aggressive selling from speculators in the futures market.

According to the latest Commitment of Traders report from the CFTC, speculators had during a two-week period to January 16 shifted their net position in the HG futures contract from a 10k long to a 25k short, the biggest bet on lower prices since July 2022. Combining this observation with a volume weighted average price (VWAP) during this two-week selling period around $3.8050, and the risk of another short squeeze may attract fresh attention should the price manage to break higher from here. We maintain a positive outlook for copper given the prospect of an increasingly tight market towards the second half of the year, but given current China worries and ongoing speculation about the timing, pace and depth of incoming US rate cuts, the short-term direction will likely be decided by short-term trading strategies. 

HG copper is currently trading near the center of a 40-cent wide range, and following early January weakness the market is now showing signs of consolidating with a band of key moving averages offering resistance between $3.79 and $3.825.