Copper price plunges as market waits for Shanghai whales’ next move

Red metal back in the red.

Copper prices fell sharply on Friday after touching successive multi-year peaks earlier in the week as risk-off sentiment hit wider financial markets after a spike in bond yields.

Copper for delivery in May fell as much as 4.4% on Friday, with futures touching a low of $4.077 per pound ($8,988 a tonne) on the Comex market in New York. Selling was heavy with more than $17 billion of metal exchanging hands by lunchtime.

Click here for an interactive chart of copper prices.

“We could run into a cascading wave of long liquidation, but I think the fundamental reason for owning commodities will probably prevent a major correction”

Ole Hansen, head of commodity strategy, Saxo Bank in Copenhagen

Other metals, such as aluminum and nickel, were also hit as Asian shares suffered their heaviest fall in nine months amid a rout in global bond markets that sent yields flying.

“The short-term outlook is probably one of caution, with risk-off deleveraging hovering over the market,” Ole Hansen, head of commodity strategy at Saxo Bank in Copenhagen, told Reuters.

“What we are seeing is probably an overdue and healthy stage of consolidation at best or a correction at worst.”

A lot would depend on the reaction of big Chinese players that have taken large positions, such as Shanghai Dalu Futures, which has amassed a $1 billion long position in copper contracts, Hansen added.

“The question is what kind of pain threshold those big whales in the Chinese market have,” he said.

“We could run into a cascading wave of long liquidation, but I think the fundamental reason for owning commodities will probably prevent a major correction.”

Supply surge

Chinese copper smelters grappling with a shortage of semi-processed material are set to see an influx of supply from South America, a sign that the tightness helping supercharge the metal’s rally may be easing.

Starting next month, there will be a large number of ships arriving at Chinese ports from Chile and Peru, the nation’s main suppliers, as bottlenecks ease, according to IHS Markit lead shipping analyst Daejin Lee. The amount of concentrate expected to reach the Asian nation may climb almost 60% from February’s volume, he estimated.

“The narrative could be shifting from very tight supply on account of port congestion and logistics difficulties, and even the waves in Chile, to more easier supply,” Ed Meir, an analyst with ED&F Man Capital Market, told Bloomberg.

“That could take a little bit of the air out of copper’s rally.”

(With Files from Bloomberg and Reuters)

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