What can we expect for copper prices?

After surging close to 15% over the past weeks, can the rally for copper prices sustain?

What can we expect for copper prices?

Near term, copper prices are riding on the energy shortage crisis. While the crisis prompted metal supply cuts from China to Europe, a rebound in economic activities due to improved vaccination rates have concurrently been driving demand. The supply-demand imbalance has been reflected in the near-record low for global copper stockpiles, along with copper contracts trading in steep backwardation on the London Metal Exchange.

A look at the copper net non-commercial positioning data from the Commodity Futures Trading Commission (CFTC) indicated an increase in net-long positions from the week before. However, as copper prices near its all-time closing high, one may note that non-commercial net-long positions widely trail behind its February 2021 high. This may suggest that some market participants continue to stay on the sidelines, over concerns of softening industrial production in China and further reserve sales putting a cap on further upside.

Recent moves by China’s government to rein in coal prices ahead of winter may spur some worries that authorities are increasingly concerned on surging commodity prices, which may flow through into industrial metals. Markets caught a glimpse of this back in June, when China released some industrial metals from its national reserves to curb surging prices, fuelling some expectations that price upside may be capped by government intervention.

Copper – technical analysis

After a recent surge above its previous consolidation zone, copper prices have come off a little from its three-month high and continues to hover above the key US$10,000 per metric ton mark. A recent retest of the US$10,000 level yesterday was met with a bullish rejection, suggesting that buyers are trying to keep in control. A break below this level may potentially bring further downside to the US$9,476 level next, where a previous resistance will now serve as support.

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