FOCUS: Metals fund CWC says copper price of $8,000 possible in 2020

  

By Hassan Butt, Fast Markets

 

August 13, 2020, 16:25 GMT

London, Metal Bulletin

The recent bull-run in the three-month copper price on the London Metal Exchange has made it the best-performing base metal this year, while a flurry of buying activity has spilled into many parts of the base-metals complex.

Yet LME copper’s recent run, supported by a sustained period of Asia-led consumption, could push the price as high as $8,000 per tonne this year, according to specialist metals trading fund Commodities World Capital (CWC).

The fund was established in 2018, and remains under the management of partner and chief investment officer Luke Sadrian, after co-founder Thomas Hodge joined Sucden Financial earlier this year.

Sadrian’s single-metal strategy has since expanded to include other commodities, and the London-based partner sees Chinese buying and a European resurgence as the drivers for further price rises.

“I think that China has paused its restocking activity in some ways for now, and that has put a floor on [the LME three-month copper price] for the past week or two, which is natural for August. Whether they restock after [the seasonal summer slowdown] remains a question, but I think the ‘heavy lifting’ has been done,” Sadrian told Fastmarkets.

“Interestingly, improved economic sentiment in Europe has meant that, for the first time in a while, the region has something positive happening in terms of fiscal stimulus. Demand is always hard in Europe, but the supply chain there has restocked to a certain degree, and the strengthening of the euro gives an incentive to restock,” he added.

The euro was trading at €1 to $1.1763 on Thursday August 13, according to exchange-rate website Oanda.com. This compared with €1 to $1.1847 on August 6, €1 to $1.1299 on July 13, and €1 to $1.0833 on May 13.

This coincides with the largest daily increase in open interest in LME copper this year, with a total of 424,073 open positions active on the exchange as of August 12, an uptick of 8,637 open positions overnight.

But after a build-up of net speculative length over the July-August period, the red metal’s outright price has fallen prey to sharp sell-offs, notably a 3.4% decline on August 7, and a descent from the year-high of $6,563 per tonne achieved on July 20.

Yet for CWC, the right kind of investment strategy remains paramount in the current climate. And with market volatility now widespread, the fund remains confident that a shift to complex-wide investment could yield higher returns.

“There seems to be a general consensus that commodities will become interesting in the next couple years, but I think there could be fatigue from setbacks in previous years, and we’ll see a small move into the space instead,” Sadrian said.

Returning to the topic of LME open interest, however, market depth in LME copper may have returned to levels seen before the start of the Covid-19 pandemic, but the same cannot be said for the rest of the base-metals complex.

As an example, LME aluminium has outgrown its pre-pandemic market depth, pushing firmly beyond the 1 million mark in terms of open positions, a figure it rarely broke through in the preceding decade.

LME zinc, on the other hand, at just under 260,000 open positions, is no longer the market it once was, and will need key investment if it is to surpass the 300,000 open positions seen in February. For LME tin, at just under 18,000 open positions, a lack of liquidity has often led to volatile price swings.

“But I think, three years from now, people will be piling into this space,” Sadrian said.

“I’m not bearish at all. I think what we have seen over the past couple of days is healthy. We’ll see $8,000 per tonne in the LME three-month copper price by the end of the year, and $15,000 per tonne in nickel,” he added.

“It’s not going to be a straight line,” he concluded, “but I envisage the markets moving like this. With the US [presidential] election coming up, there’s a chance that a negative catalyst could emerge. I would change my mind, perhaps, but in this low interest rate world right now, I see things improving.”