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February 2018 | Base Metals

Copper: Weak fundamentals are temporary

Copper prices finally broke below $7,000 per tonne last week amid the broad-based sell-off across the industrial metals. Short-covering so far this week, however, has seen the market attempting to regain the $7,000 level already, which is a bullish sign. But prices seem more aligned to our low-case scenario at the moment and we wouldn’t be surprised to see more weakness in the short term given rising stocks, weak premiums and loose spreads. But these should prove only temporary and we still expect a coming tightening in supply/demand dynamics in the months ahead – even without strikes – which should see the uptrend in prices resuming in H2 2018.

Copper hit by intensifying risk-aversion...
Copper came under marked downward pressure on the LME last week, falling 4.6%, amid a broad-based sell-off across the industrial metals complex, with the LMEX down 4.0%. Worryingly, fresh selling was the main driver, judging by the 4% rise in open interest coinciding with the price fall. Trading volumes were high.

Still, we do not think that a negative swing in sentiment against copper has emerged; rather, the selling pressure was the result of a confluence of negative macro forces. Among them, we note a rise in the dollar (the DXY recorded its largest weekly gain since November 2016), an increase in global risk aversion (the VIX...


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