Copper: Asymmetric upside risks from US-China trade news – TD Securities

TD Securities analysts note that after months of weakness, which took prices from nearly $6,200/t in mid-July to the mid-$5,000s, copper had a strong rebound to a high of $5,790/t on Thursday.

Key Quotes

“The red metal surged 1.71% as optimism grew that there will be progress in the US-China trade talks, which many believe would go a long way in averting a sharp slowdown in global copper demand.”

“Assuming an equal probability of a failure or success on the trade file, the risks are very much skewed to the upside due to the fact that CTAs and speculative investors are positioned near max pessimism. Indeed, CTAs are at 100% of their historic maximum short exposure, and money managers are also very much overexposed on the short end of positioning.”

“If a trade deal is made, the copper market would likely surge as a tighter than originally expected supply-demand environment would force specs to cover their shorts.”

“Since there is ample room to cut shorts and take on new longs, the price response would be quite robust and could bring copper near the $6,100s. Since the market is already uber short, at least in the short term, a disappointment would likely only force prices to recent lows.”