LONDON (Reuters) – Is copper finally about to break up out of its well-trodden seven-month range? London Metal Exchange (LME) three-month copper came tantalisingly close on Wednesday with a mini-surge to $6,426.50, challenging the upper band of the $5,725 to $6,440 range that has defined the market since July 2018.
The market was regrouping Thursday around the $6,380 level. Glencore set the ball rolling with an announcement that an “updated mine plan” at its Mutanda copper operations in the Democratic Republic of Congo would reduce output by 100,000 tonnes per year.
Momentum came from chart dynamics, specifically a break of the 200-day moving average on Tuesday, and frantic covering by options traders against upside exposure.
What really primed the move, however, was a dramatic tightening in LME time-spreads. The benchmark cash-to-three-months period flipped from small contango at Friday’s close to $58 backwardation at Monday’s close, the tightest the spread has been since October last year.
The contraction was sharp and brutal for short position-holders but not entirely unexpected. Stocks of copper registered with the LME are super low. Indeed, global exchange stocks are low, which is why a growing number of copper bulls argue that copper’s robust micro dynamics can turn back the bear tide of macro negativity.