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Chinese Imports Stoke Copper Optimism

Tuesday, December 10, 2013

Copper futures posted their third positive day in the past four trading sessions on traders' optimism that improved economic conditions will improve US demand for the metal. Precious metals have floundered lately, as improved economic conditions could warrant a scale-back of easing in the coming months, reducing inflation premium. The perception that economic risks have dissipated has also sucked some of the risk premium out of Gold and Silver. China has also seen a rise in Copper imports, suggesting 2014 estimates for demand may be on the low side.

Fundamentals

China imported 435,613 tons of Copper during the month of November, which is an increase of 7%, year over year. It is also a nice jump from October imports of 406,708 tons. China accounts for 40% of global Copper consumption. On the economic front, China's trade surplus rose from $31.1 billion in October to $33.8 billion in November. This is China's biggest trade surplus in almost 5 years. Germany's disappointing industrial output was of some concern to traders, as the nation is the European Union's largest economy. This bit of negative news in Germany was not enough to derail the rally based on US and China optimism. The large short speculative position in the Copper was reduced last week, according to the Commitment of Traders ("COT") report. The COT report showed non-commercial traders were short 27,477 contracts, which is a reduction of 4,270 contracts from the prior week. The short position is large enough to give traders reason to be concerned about a short-covering rally.

Technical Notes

Turning to the chart, we see the March Copper (HGH14) contract forming a double-bottom pattern, suggesting prices may be set to reverse. The measure of the move suggests prices could move above the 3.30 mark in the near-term. The RSI indicator is nearing overbought levels, which may impede prices in the near-term.

Rob Kurzatkowski, Senior Commodity Analyst