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Forecasts and market analysis based on price assessments from Fastmarkets MB and Fastmarkets AMM

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June 2018 | Base Metals


Copper: Fragile rally


Copper prices hit their highest since January 2014 last week, confirming that the major uptrend is alive and well after spending the first five months of this year effectively consolidating. But last week’s rally was very speculative in its nature, with little reason for copper to outperform its peers than the perceived risk of supply disruptions in Chile especially, but also in China. The intensity of the rally looks unsustainable and will almost certainly turn into a spike if a strike is avoided at Escondida. But our base case forecasts nevertheless envisage prices clawing their way back to these levels again and trading here more sustainably by Q4, such is the improvement going on in copper’s underlying supply-demand fundamentals, we believe.

Star performer of the past week
LME copper rallied 5.8% last week, outperforming the LMEX, up 3.5%. Trading volumes in copper were hefty, implying a strong intensity behind the rally. The intraday high was $7,348/tonne. The main driver appeared to be fresh buying, judging by the 5% rise in open interest. But given that the cash/three-month spreads tightened to a two-year high backwardation of $12 per tonne on June 8, we think that short-covering featured too. The emergence of a dominant holder of 50-79% of total warrant holdings early in the week intensified the tightness at the front end of the curve.

Two main catalysts behind the copper rally

Aside from a depreciation in...

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