(Repeats Monday's column with no changes to text)
* The opinions expressed here are those of the author, a
columnist
for Reuters.
* Dalu Futures copper position in Shanghai: https://tmsnrt.rs/2ZH80Lz
* Investment fund positioning on LME copper: https://tmsnrt.rs/3dWdo5T
* Money manager positioning on CME copper: https://tmsnrt.rs/3r7ruVF
By Andy Home
LONDON, March 1 (Reuters) - Copper punched through the
$9,000-per tonne level last week for the first time since 2011,
with a red-hot rally showing no signs of abating.
The London Metal Exchange (LME) three-month copper price
reached $9,617 per tonne on Thursday, within sight of
the all-time high of $10,190 recorded almost exactly 10 years
ago.
While the copper market has risen for 11 consecutive months
fuelled by China's physical buying and the narrative of a
metals-heavy global green recovery, Chinese funds stepped into
the driving seat last week with one player placing a mega
$1-billion bet on higher prices.
Investors outside of China appear more equivocal, with fresh
money entering the market even as other funds start taking
profits. Few, though, seem prepared to risk going short even as
wariness grows that copper's one-way bull run is overdue a
correction.
A major deterrent to doing so is an emerging squeeze on the
London market, where official stocks are low and time-spreads
are tightening.
CHINA BULL
It's clear that someone in China decided to celebrate the
Year of the Ox by going long copper.
Broker Shanghai Dalu Futures jumped to the top of the bull
rankings on the Shanghai Futures Exchange (ShFE) copper contract
when the market reopened after the lunar new year holiday.
As of last Friday the firm, controlled by Zhongshan
Securities Co Ltd, held a long position equivalent to almost
120,000 tonnes across the April-July contracts, according to
Refinitiv data.
It also held another 20,000 tonnes of long positions on the
Shanghai International Energy Exchange's (INE) international
copper contract.
The Shanghai Futures Exchange only details long and short
positions on contracts above a certain level of open interest,
meaning the position could be bigger still if it's spread across
less liquid months.
The ultimate identity of the big Shanghai copper long is a
source of much speculation in the market with many drawing
comparisons with another mega bull play channelled through Gelin
Dahua Futures in 2018.
Dalu has also rapidly built up positions on the ShFE's
aluminium contract, suggesting a broader play on the industrial
metals narrative.
The mystery buyer, however, is only the most prominent part
of a bigger speculative crowd surge into the Shanghai copper
market.
Market open interest on the ShFE contract mushroomed from
277,000 contracts to a one-year high of 378,401 over the course
of February, coinciding with the latest leg of the price rally.
Volumes soared to levels last seen in 2015, suggesting a retail
investor stampede to get a piece of the copper action.
FUNDS BUILD LME, CUT CME POSITIONS
While bulls run wild in Shanghai, the investment picture
outside China is more nuanced.
The investment fund net long position on the LME has risen
to 47,897 contracts, the highest level since the exchange
started publishing the Commitments of Traders Report in its
current format at the start of 2018, while LME broker Marex
Spectron estimates the speculative net long in the London market
reached 62% of open interest last Thursday, a level not seen
since 2004, when it peaked at 75%.
However, it's not all one-way traffic.
The long position held by the LME's "other financial"
category, which captures insurance and pension flows, has been
in steady retreat since its October 2020 peak of 43,212
contracts, falling further to 31,414 contracts last week.
Also in retreat are fund bulls on the CME copper contract.
The money manager net long slipped from 87,312 to 70,531
contracts in the week to last Tuesday (Feb. 23) even as the
price moved higher.
The reduction appeared to be classic profit-taking with
outright long positions falling and outright short positions
holding steady at their recent low levels.
Caution about the potential for a price correction after
copper's relentless upward march is currently being expressed
via the purchase of put options with few prepared to risk an
outright short position.
LONDON SQUEEZE
The collective reluctance to stand in the way of a
fast-moving bull train is being reinforced by an emerging
squeeze in the LME copper market.
Being short in a volatile and tightening market is a scary
prospect for even the most adventurous funds.
The benchmark LME cash-to-three-months time-spread <CMCU0-3>
closed last week valued at a backwardation of $62.25 per tonne,
which is the tightest the period has traded since early 2019.
LME inventory is stubbornly low despite a widening cash
price incentive to deliver metal onto LME warrant. LME stocks
currently stand at 74,200 tonnes, down by 31,600 tonnes on the
start of January. A steady trickle of arrivals has been more
than offset by departures.
LME stocks, however, can often flatter to deceive and any
further tightening will test the true level of availability.
As of last December there were another 134,000 tonnes of
copper sitting in the LME's off-warrant shadow zone. Most of it
- 99,000 tonnes - was located at Rotterdam, where visible
onto-warrant inflows have totalled just 3,325 tonnes so far in
2021.
MADE IN CHINA
Chinese investors may have propelled the latest leg of this
rally but market optics in Shanghai are changing.
ShFE registered inventory more than doubled over February to
147,958 tonnes, the highest tally since October last year.
Inventory always builds over the Chinese new year holidays
but the effect this year is going to be accentuated by the new
physically-deliverable INE copper contract.
Bonded stocks registered with the INE jumped from just 199
tonnes to 57,346 tonnes last week, although it's unclear whether
this was the result of new arrivals or existing inventory being
registered with the exchange.
Either way, this new component of the global stocks picture
reinforces the sense that China's supply chain is starting to
refill after last year's stellar imports.
Rising Chinese stocks will be a test of the big long
operating through Dalu Futures. Everyone remembers the last time
a Chinese fund took this size a position. The Gelin Dahua bet
didn't end well for the fund or the copper price.
(Editing by Kirsten Donovan)