Hedge Funds Embrace Copper’s Wild Ride

Hedge Funds Embrace Copper’s Wild Ride

30 nov 2016

Goldman Sachs Group Inc is squaring off with hedge funds due to the biggest copper rally that has never been witnessed for the past six years.

A drop-in London Metal Exchange(LME) monitored inventories caused a thrust to the future prices by a 20% margin and this accounted for the price gains. Another reason for the gain was that speculators anticipated that there would be an increase in metal demand because of the Donald Trump’s pledge on infrastructure buildings. The reason why the money managers might have taken an excessive bull position on this metal might be because they fell for Donald Trump’s conviction.

Three weeks prior to this event investors anticipated price decline, this was a crystal-clear change of sentiment. Copper remain unmoved even as other metals were erratic and volatile all year long in 2016, an increase in China imports couldn’t even shake the copper prices. November 2016, Asian trader’s fury was triggered even further by the president-elect who proposed a $1trillion investment on infrastructure over the next decade.

In a telephone interview with Senior market strategist, Donald Selkin who oversees $3 billion at National Securities Corp. stated that the move was parabolic and these moves can’t be sustained.

Net Long Holding

According to Commodity Futures Trading Commission, copper net- long position shot to 70,546 a 19% move and the weekly options ended on November 15. That was the largest holding in data since 2006. Comex futures rejuvenated their advance November 14 after their first week of a drop in four weeks. By 12.43 pm in shanghai the metal had risen to $2.526 which is a 19% move which translates to a yearly gain of 18%.

Since the end of September, there was a slump of 32% for the global copper inventories tracked by LME, this snapped the half-year gains and gave an indication that the demand may be picking up at a fast rate. The decline in Supplies is attributed to the reiteration of infrastructure spending according to Trump victory speech after his successful run for the president on November 8, 2016.

Since then, mining shares have been doing well. Freeport-McMoRan Inc, which is the largest public traded producer of coffee shot over 14% since the election night. A likelihood of infrastructure spending could see mined commodity producers benefit through the next year according to Jefferies Group LLC. Copper is used to make building pipes, it is also used in electric grids.

Global Economy

In an interview with Adkerson on Nov. 16 at Freeport’s office in Lima, he said that copper push for prices will have an impact but not that adverse. On further probing, he continued to say that for copper demand to be steady it requires China to have a positive economic outlook in the world’s global market.

Last week Goldman said the copper market has become too bullish over a short span even as it was forced to increase its three – month estimate on LME from $4300 to $5000 a ton which is 16% increase. It raised its full-year estimate from $4200 to $4800. Their view is still below the spot price for copper for delivery in three months, which settled on Friday at $5423 which on average is $4767.54 in 2016. The bank anticipates gains in supply despite the shy demand of Chinese growth.

Last week in a telephone interview with Robert Edwards, a management consultant at CRU group, he said that copper is at the moment experiencing production output challenges by about 400,000 tons. To adjust for that deficit, U.S copper would need to increase by 25% and China’s consumption would need to increase by 4% above the baseline view.” this was last week at an industry conference in Naples, Florida.

According to Quincy Krosby, a market strategist at Prudential Financial Inc, he said that the gains were as a result of the pullbacks and that was the norm until there is enough reason to underpin the move with additional spending on infrastructure plans. He continued to put it say that there was going to be zig zags patterns on copper prices.

Source: https://www.bloomberg.com/news/articles/2016-11-20/hedge-funds-embrace-copper-s-wild-ride-as-goldman-issues-warning