By Andy Home
LONDON- Hedge funds are starting to buy into the rally in copper, which continues to build upside momentum. London Metal Exchange (LME) copper hit a two-year high of $6,633 per ton on Monday. At a current $6,490, it is now up 5 percent on levels at the start of the year, having clawed back all its COVID-19 losses.
Funds have built significant long positions on the CME copper contract for the first time this year and net money manager positioning is now the most bullish it’s been since June 2018.
What’s attracting investors back to the copper market is the current bullish mix of strong Chinese demand and fragile Chilean supply.
The latest Commitments of Traders Report (COTR) shows hedge funds returning to the CME copper market on the long side.
Speculative positioning over April and May was characterised by a steady reduction in short bets as the price rallied powerfully off its March lows. Conspicuous by its absence, however, was any sign of bull commitment with long positioning flat-lining at very low levels.
Fund money was evidently drifting away to more enticing markets with industrial metals still perceived to be highly vulnerable to global economic slowdown.
That has changed over the last couple of weeks.
Speculators have lifted their outright long positions to 59,818 contracts, the highest level since January, when, pre-coronavirus, the market was collectively still expecting good things for the copper price in 2020.
Short positions, meanwhile have been cut to under 30,000 contracts over the last two COTR reports, the lowest level since early 2018.
The net balance is a collective long position of 31,517 contracts, the strongest expression of bull sentiment for two years.
To some extent this shift in positioning from short to long has been driven by the price itself because technical and automated funds are locked in a continuous feedback loop with the underlying market.