The Bull

Wednesday 26

September, 2018 1:33 PM



Short-covering by funds fuels copper rally

Short-covering by funds fuels copper rally

An escalating trade dispute will probably cap a rise in copper prices, which are up due to funds covering short positions and a recent dollar weakness.

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By AAP 07.09.2018 07:42 AM

Copper prices rose due to funds covering short positions and recent dollar weakness, but significant gains are unlikely due to an escalating trade dispute between the United States and China.

Benchmark copper on the London Metal Exchange ended up 0.9 per cent at $US5,927.5 a tonne in official rings.

That is a recovery from the 14-month low of $US5,773 a tonne hit on August 15 for the metal used in the power and construction industries, but prices are still down about 20 per cent since a four-and-a-half year high of $US7,348 hit in June.

"Copper tested the lows again and couldn't get through. There's been a lot of short-covering, profit-taking and the dollar is lower, which helps," one copper trader said.

"But there is a lot of nervousness about the US-China trade war, that will keep the bulls at bay."

A lower US currency makes dollar-denominated metals cheaper for holders of other currencies, which could boost demand.

This relationship is used by funds to generate buy and sell signals from numerical models.

US President Donald Trump has said he is prepared to quickly ramp up a trade war with China and has told aides he is ready to impose tariffs on $200 billion more on Chinese imports as soon as a public comment period on the plan ends.

The world's two largest economies have already applied tariffs to $50 billion of each other's goods in a tit-for-tat trade war.

Talks aimed at easing tensions ended last week without a major breakthrough.

China is the world's largest copper consumer, accounting for nearly half of global demand estimated at around 24 million tonnes this year.

The US accounts for about eight per cent of global demand.

China is also the world's largest consumer of other industrial metals such as aluminium, zinc, lead and nickel.

"Base metals were among the worst performers in the commodity space as growing US-China trade tensions along with signs of slowing growth in China took a toll," said INTL FCStone analyst Edward Meir.

Prices of the metal used in transport and packaging are to an extent supported by worries about supplies due US sanctions on Russian aluminium producer Rusal and higher input costs.

Aluminium was down 1.3 per cent at $US2,040 a tonne, zinc gained 0.9 per cent to $US2,441, lead slipped 0.7 per cent to $US2,035, tin gained 0.1 per cent to $US18,850 and nickel was little changed at $US12,445.

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