Copper Weekly Bulletin – N°2 – Commodity Trading Major

G20 as the last hope for trade war resolution and global economic growth

The copper three-month future price rose for the fifth straight session on Monday reaching $6,259 a tonne and having gained 2.5 percent since last week. This was due to the prospect of a resolution to the US-China trade war, with President Trump announcing that China was willing to take steps to resolve the issue.

However, the hope of a resolution fell short at the APEC summit last weekend, where for the first time, US and China fail to agree on a communique. Divisions were evident at the summit and Vice President Mike Pence even threatened China that they will double the tariffs if they do not accept US demands. Therefore, the prices fell down to $6,240 on Tuesday and to $6,239 on Wednesday. It dropped again on Thursday to $6,217 following another clash between the two world’s biggest economies at a WTO meeting on Wednesday, however the price is supported by a weakening dollar therefore making it cheaper to buy dollar-backed commodities

In general, the price of copper as well as the other metals traded in a narrow range the whole week, but the price outlook could improve if the sigh of a potential resolution in the trade conflict rise with the G20 summit at the end of the month.

Since last bulletin, the premium price for cash over 3-month dropped from $31 to $18.50 on Friday, and it rose again to $21.50 which still points toward tight market.

Negative sentiment of the market has a huge impact on the copper price.

Strengthening supply

According to mining.com, the supply is quite strong at the moment and is expected to be even stronger thanks to a 3% increase expectation of Chile. This 3% increase expectation is due to an increase of 54,100 tonnes in the first three quarters of 2018, a 13% year-to-date growth over the same period of 2017. It makes experts confident that Chile is going to continue with the current pattern. As a reminder, Chile is the biggest world’s exporter and account alone for more than 30% of total world’s supply.

Moreover, it appears that this trend is not only happening in Chile but also in other countries such as Zambia for example. According to Kitco, Zambia has currently done 10% better than last year during the same period. It is thanks to the biggest mining companies improving machines to extract copper.

As the global supply of copper is strengthen, there price of copper is supposed to decrease in a near future.

COPPER SUPPLY: Headline inventories of copper in LME-registered warehouses MCUSTX-TOTAL fell by 9,400 tonnes to 151,625 tonnes, nearing last month’s 10-year low of 136,675. tonnes.

Since two weeks ago, the level of the open tonnage LME copper stock (tradable warrant) remain pretty stable.

Such a stability means that for the moment, copper supply and demand meet pretty well.

Backwardation in the future

The forward curve is in backwardation, as we can see on the table below, the current cash price was increasing until a few days ago (12.11.18 – 20.11.18) before decreasing these last two days. The reason of this backwardation is still due to the negative sentiment toward the slowing chinese economic growth as well as the trade war. People prefer to trade to go short and sell at the cash price rather than at the future price which is the reason why the LME still has a premium of $21.50 cash over the three-month.