Demand Concerns May Affect Copper’s Rally

The price of copper fell below its $10,000 per ton level at the start of last week on the London Metal Exchange for the first time in weeks. The metal’s risk equilibrium seems to be shifting as funds begin raising bear bets on the CME copper contract.

However, supply concerns are still increasing following protests at a pair of big copper mines in Peru. These protests knocked out one-fifth of Peru’s production capacity before the country’s government declared a state of emergency to reclaim control of the Cuajone mine.

Over the last few weeks, managers of funds have increased bearish bets on copper contracts. The latest report by Commitments of Traders shows that, as of last week, outright short positions stood at 45,011 contracts. Before this, the highest short positions for the metal stood at 44, 979 contracts.

The return of the bears coincides with increasing concern about the demand outlook for the metal due to the raging war in Ukraine and the lockdowns imposed in China. Shanghai, which is a major manufacturing and logistics hub, is now in its fourth week of complete lockdown. The city is home to more than 25 million individuals.

This isn’t the only city being affected by the lockdowns either, as the government carries out mass testing for residents in the District of Chaoyang, Beijing. The disruption has also began affecting China’s huge manufacturing sector.

Figures show that factory activity declined considerably, with the Caixin purchasing managers index dropping to 48.1. This is its lowest reading since the pandemic began. The official purchasing managers index also slid below 50 for the first time since this year began.

CRU analysts have lowered their predictions for international growth for this year to 3.5% to reflect the declining consumer confidence and the increasing inflationary pressures. It is expected that the impact of the Ukrainian war on commodities will cause industrial production to be more than 3% weaker.

While self-sanctioning has made logistics and financing harder, no sanctions have been imposed on copper from Russia. However, many theorize that the reluctance from consumers to accept Russian brands may be behind the recent influx of copper to LME warehouses. Figures show that since March, headline copper stocks have risen to more than 137,000 tons from about 69,500 tons.

While the blows to the supply of copper from mines will affect the market in the future, the outlook for demand is the current concern. However, this concern is likely to leave major players such as Freeport-McMoRan Inc. (NYSE: FCX) unfazed since the long-term outlook is bullish given the huge demand for copper from the green-energy sector.

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