Copper overshooting fundamentals?


Copper prices have been on a very strong rally in line with other commodities. Futures markets had rallied above $9,000 a ton on the reflationary trade narrative. A global vaccine roll out would bring economies back to normal. However, the recent surge higher in bond yields is causing markets to worry that things are going too quickly.

Copper will come under pressure. On top of the bond yield rise on faster rate rises being anticipated stockpiles in copper are also high. According to Bloomberg the levels of copper sat in China’s bonded warehouses have stayed high since the surge higher from July last year. Stockpiles have also been reported to be picking up in Shanghai, London, and New York since late February. Furthermore, with reports that China are also talking about walking back from easy policy copper looks like it will find sellers on the short term rallies higher.

However, deeper pullbacks should still find buyers as the return to global growth should support prices over the medium to longer term. Citi upgraded their near-term copper point price forecast (0-3 months) to USD 10,500/t (prev USD 9,000/t); and raises their 2021 forecast to USD 10,000/t (USD 9,000/t).

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