Copper Price Rallies on Shrinking Chinese Inventories, Supply Chain Bottlenecks

Copper, Commodities, Supply Chain, Inflation – Talking Points

• Copper prices rebound slightly following last week’s notable decline
• Headwinds remain as many questions linger around Chinese growth, Evergrande contagion
• Supply chain bottlenecks have exacerbated draws on stockpiles, inventory remains low

Copper prices rallied on Monday as fears continued to mount over a global supply shortage. An overnight report showed that stockpiles of the red metal in Shanghai exchange warehouses had fallen to their lowest levels since 2009. The price has also been supported by notable global supply chain deficiencies, which have resulted in elevated prices and lead times for nearly all products. The global energy crunch has also helped boost copper as suppliers continued to shutter their doors due to rising input costs. Price may continue to move higher as fears over global shortages grow.

While the fundamental outlook for copper remains relatively constructive, risks do remain. The recent economic slowdown in China has certainly weighed on global sentiment, with many market participants eagerly following the ongoing Evergrande crisis. China’s growth slowdown has put a sizeable dent in metals demand, which in waves has placed pressure on metals and commodity-linked FX.

Copper Futures (COMEX) Daily Chart

Chart created with TradingView

Despite fears over China’s recent slowdown, market data indicates that traders remain optimistic about copper prices. According to official COMEX (Commodity Exchange, CME Group), money managers are net long a total of 54,030 COMEX copper future contracts. Price remains supported by fundamental supply constraints that are proving to be stickier than previously expected, which will likely be a topic of discussion at next week’s FOMC policy meeting. From a technical perspective, front month COMEX contracts also have key trendline support just below current price levels, highlighting that weakness may potentially be bought.

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— Written by Brendan Fagan, Intern

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