Chinese economic slowdown and the trade war keep copper price low:
The 3-month copper price dropped on Monday November 5 after experiencing a two-week high last Friday following some comments made by the US president Donald Trump, on a probable approaching trade deal with China.
The copper price was trading at USD 6,315 a ton on Friday, its highest since October 22 but slipped down 1.5 percent to USD 6,191.50 a ton on Monday as investor took profits.
Since late September the price of the copper varied between a USD 5,950 and USD 6,400 range as the worries of trade war minimizes the effect of the shortage of the metal.
The LME also introduced a premium of USD 31.00 per tonne as concerns of a shortage rises which contrasts greatly with the discount of USD 47.00 at the end of October.
Indeed, the price of copper is a victim of negative sentiment. FocusEconomics noted at the beginning of the month that the price of the commodity is stable but is not going anywhere soon for two reasons: firstly, the chinese economy is slowing then because of the tariffs.
The price of the red metal was supported last month by the drop in inventories to the lowest in 10 years (see graph 1; on a 5 year-range only). Therefore, the drop helped to outweigh the chinese slowdown as well as the worries of a trade war.
Despite the negative sentiment, analysts forecast that the price of copper should rise in Q4 as new technologies such as renewables and electric cars will drive the demand of the commodity.
Graph 1: Warehouse Stocks Level
Inventory Level:
Graph 2: Inventory level and price
On 31st October, the LME copper inventory level was at his lowest in a decade. The day after, it increased from 57’650 (open tonnage) to 102’600 tonnes and directly stabilized around 100’000 tonnes.
We observe here (31.10.2018 – 01.10.2018) a common phenomenon between the price and the inventory level as the stocks suddenly increased when the price was relatively low.
At the same time and on a larger scale (2 weeks), we would expect the price to grow when the inventory fall. Usually, an inventory fall means that there is a shortage or an increased demand in the market. Therefore, such an increase in the inventory illustrates the actual uncertainty around copper supply and demand due to political factors.
Backwardation or Contango?:
Backwardation: In October, the trend in the 3-month future price shows that there is shortage on the supply side as the spot price is higher than the future price. It means that buyers need copper now, in that condition, a trader should be “short” or sell his positions to not take carriage cost.
Sources:
https://www.voanews.com/a/china-xi-trump-phone-call-extremely-positive/4639713.html
https://www.reuters.com/article/global-metals/metals-copper-slips-on-profit-taking-idUSL4N1XG3CH