Copper’s supply issue

Giles Coghlan LLB, Lth, MA Financial Source

A recent article by Bloomberg has flagged a problem with the copper market. It comes from a storage facility in Shanghai’s free trade zone where the Yangtze River meets the Pacific. These warehouses contained copper stockpiles and boomed on a financing scheme that allowed finance to be raised against physical copper. The problem is that these warehouses are now nearly empty. According to Bloomberg, stock levels are down around 300K tonnes from earlier this year to some of the lowest levels in decades.

Traders are paying premiums for copper delivery

The near-term outlook for copper is tilted to the downside of slowing global growth, but the physical market is very tight. The drop in supply levels from the bonded warehouses has already meant that copper on the Shanghai Futures for delivery this month is trading at a premium of 2,020 yuan for delivery in 3 months. This is the highest premium since 2005.

What this means is that if there is any sign of demand picking up then copper prices cab accelerate very quickly. David Lilley, chief executive of hedge fund Drakewood Capital Management Ltd, explains that with the warehouses being so low in inventory it is like the copper market living ‘without a safety net’. Mr. Lilley said that the ‘physical market is so tight, it’s like a room full of gunpowder- any spark and the whole thing could blow’.

Does this now play into the wider picture of potential higher copper prices in the medium term? Do medium-term copper buys make sense? See the previous article here for copper.

Learn more about HYCM

Author

Giles Coghlan LLB, Lth, MA

Financial Source

Giles is the chief market analyst for Financial Source. His goal is to help you find simple, high-conviction fundamental trade opportunities. He has regular media presentations being featured in National and International Press.

EUR/USD hits two-day highs near 1.1820

EUR/USD picks up pace and reaches two-day tops around 1.1820 at the end of the week. The pair’s move higher comes on the back of renewed weakness in the US Dollar amid growing talk that the Fed could deliver an interest rate cut as early as March. On the docket, the flash US Consumer Sentiment improves to 57.3 in February.

GBP/USD reclaims 1.3600 and above

GBP/USD reverses two straight days of losses, surpassing the key 1.3600 yardstick on Friday. Cable’s rebound comes as the Greenback slips away from two-week highs in response to some profit-taking mood and speculation of Fed rate cuts. In addition, hawkish comments from the BoE’s Pill are also collaborating with the quid’s improvement.

Gold climbs further, focus is back to 45,000

Gold regains upside traction and surpasses the $4,900 mark per troy ounce at the end of the week, shifting its attention to the critical $5,000 region. The move reflects a shift in risk sentiment, driving flows back towards traditional safe haven assets and supporting the yellow metal.

Crypto Today: Bitcoin, Ethereum, XRP rebound amid risk-off, $2.6 billion liquidation wave

Bitcoin edges up above $65,000 at the time of writing on Friday, as dust from the recent macro-triggered sell-off settles. The leading altcoin, Ethereum, hovers above $1,900, but resistance at $2,000 caps the upside. Meanwhile, Ripple has recorded the largest intraday jump among the three assets, up over 10% to $1.35.

Three scenarios for Japanese Yen ahead of snap election

The latest polls point to a dominant win for the ruling bloc at the upcoming Japanese snap election. The larger Sanae Takaichi’s mandate, the more investors fear faster implementation of tax cuts and spending plans.

XRP rally extends as modest ETF inflows support recovery

Ripple is accelerating its recovery, trading above $1.36 at the time of writing on Friday, as investors adjust their positions following a turbulent week in the broader crypto market. The remittance token is up over 21% from its intraday low of $1.12.