Tightening physical market supportive for Copper: Commerzbank

LONDON (Scrap Monster): LME copper appears to be drawing its support lately more-so from the physical market rather than investor flows, said Commerzbank in a commodity briefing.

While moderately softer as the New York trading day begins, copper nearly touched $8,500 a metric ton overnight for the first time since early April. This comes even though the net-long position of Comex speculators remains low at roughly 2,000 contracts and LME open interest has dropped to a two-year low, the bank added.

“Clearly it is more the tightening of the physical market which is currently lending support to prices. LME copper stocks fell on Friday to 251,825 tons, their lowest level since November 2008. The decrease in copper stocks in the warehouses of the LME cannot be explained by arbitrage between the LME and the SHFE, since copper holdings in Shanghai simultaneously dropped to 204,762 tons, their lowest figure since the beginning of February,” Commerzbank continued.

This should somewhat dampen market skepticism about Chinese copper imports, the bank says. Further, according to the Ministry of Industry and Information Technology, China plans to shut down 700,000 tons of smelting capacity by end of the year, meaning China will be increasingly dependent on imports, they added.

“The copper supply deficit could thus turn out to be higher than previously expected, which should lend support to the price of copper in the medium term,” Commerzbank concluded.