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China rising copper output may threaten electric vehicle fuelled rally

Metal News - Published on Mon, 04 Dec 2017

Image Source: ET
Reuters reported that China’s rising copper output and concerns of a slowdown in its real estate market may lead investors to exit big bullish bets in the copper market, leading to a double-digit percentage drop in prices. Mr Qian Zhou Chaos Investment base metals chief said in a panel discussion at the Asia Copper conference that “In the first half of 2018, we’ll see pressure because of the weakening of the real estate market.” He added that “We expect a V-shaped trajectory.”

Mr Adam Gillard, who works on commodity hedge fund sales at the bank said that standard Chartered Bank expects softer copper prices in the first quarter as 300,000 tonnes of new metal supply comes on stream and demand deteriorates because of a property slowdown as Beijing continues to cool an over-heated market.

The comments suggest that the buying spree that pushed copper prices to multi-year highs in Shanghai and London over the past month may be overdone. Investors have added bullish bets on expectations of soaring long term demand from the predicted expansion of electric vehicle production.

China is the world’s largest copper user.

Any pressure on prices could force Chinese speculators to unwind bullish bets worth billions of dollars they have built up over the past month, which would accelerate any sell-off and price drop.

Mr Gillard who was speaking on the same panel said that “The largest risk to copper in the first quarter will be if it moves to USD 6,500 or USD 6,400. That’ll test the dominant longs in the market.”

The bank estimates the speculators bought their positions around those levels.

Mr Gillardsaig that “Should copper move lower because of higher refined production, then we think there’s a possibility for a move lower to USD 6,000.” That would equate to a 14 % drop in prices from current levels.

Executives said that scale of the selling could be similar to the sudden liquidation in aluminium this month as investors exited bullish bets made in expectation of supply shortages because of the Chinese government’s orders to cut output as part of its clean air campaign.

Aluminium prices have fallen 7 % so far this month, on track for their worst monthly performance since May 2016, amid doubts over the scale and pace of those closures.

Mr Zhou said that “In recent years, traders have been speculating on policies and that’s why we’ve seen more money and volatility (in metals prices).”

Source :

Posted By : Nanda Koijam on Mon, 04 Dec 2017
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