Column: Sky’s the limit for investors seeking some copper action

Mining06-18 14:34

The speculative fever that drove copper prices to record highs in January has abated but is still simmering away. Investors, both institutional and retail, continue to be drawn by copper’s strategic ...

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Unless copper’s bull rally goes into reverse, they will stay long. If it extends, they will go longer.\n\nRetail investors flock to CME micro copper contract.\nRetail space\nIt’s not clear who exactly is playing on the CME’s micro copper contract, but at a tenth the size of the main contract, it’s a product aimed squarely at retail investors.\nThe January copper price spike coincided with a record surge in micro activity and although some of that froth has been blown off, volumes still registered an 83% year-on-year increase in January through May.\nOver 3 million metric tons of copper traded in the micro contract in the first five months of the year. Open interest at the end of May was three times higher than a year ago.\nCME’s copper event options, a binary punt on price, registered record volumes of 145,478 contracts in April. Turnover of 58,594 contracts in May was the second highest on record.\nCopper’s investment narrative has seeped into the public domain and what’s going on in the smaller CME contracts suggests the man in the street wants a bit of the action too.\n\nBulls far outnumber bears in LME copper options market.\nUp, up and away?\nFund positioning on the LME copper contract has mirrored that across the Atlantic, albeit mutedly.\nThe net investment long has rebuilt since March but at 34,918 contracts is modest relative to the second half of last year, when the collective bull bet regularly exceeded 60,000 contracts.\nWhile the CME price has twice revisited its January peak, thanks to all the speculation around a looming US tariff decision, the London copper market has been treading water some $800 below its January high of $14,527.50 per ton.\nInvestors seem wary of over-committing to the futures contract, but the options landscape paints a very different picture.\n\nColumn: Study group shines some light on Doctor Copper’s confusion\n\nMarket open interest through the end of this year is heavily skewed to call options conferring the right to buy.\nAs of Friday, June 12, call option open interest through December totalled almost 112,000 contracts, compared with just 52,000 contracts for puts, which confer the right to sell.\nBullish bets are clustered on the $15,500-per-ton and $17,000-per-ton strikes in September. Market open interest is 17,526 and 16,773 contracts respectively, representing a combined position equivalent to over 850,000 tons of copper.\nThese are high expectations given the LME three-month price is currently hovering just above the $13,800-per-ton level.\nBut some are even more exuberantly bullish. There is call option open interest at strikes all the way up to $20,000 per ton in December.\nOne super bull has even bought a strip of call options, sized at 50 lots per month through December, at a strike of $25,000 per ton.\nMoney power\nCopper has been on the investment radar as a proxy for global manufacturing for decades and the power of money to move prices is not new.\nAnalysts at Citi, for example, estimate funds bought around 1.5 million tons of copper in 2020, easily absorbing a physical surplus of 500,000 tons created by Covid-19 lockdown and driving prices higher.\n\nCopper price: Goldman, Citi make bullish calls on supply woes\n\nThey are at it again this year, pricing copper on its future structural profile rather than the somewhat messier current reality.\nThe danger, however, is that as ever more investors catch the copper bug, speculative buying in expectation of ever higher prices becomes a self-fulfilling prophecy.\nThrow enough money at a finite market like copper and the price is going to react one way. Neither supply nor usage is price-elastic enough to offer any short-term fundamental cushion.\nMaybe that’s what the super-bull with the $25,000 call options is betting on.\n(The opinions expressed here are those of Andy Home, a columnist for Reuters.)","kind":"highlight","is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"0","news_tag":"","news_rank":0,"isVideo":false,"video":null,"symbols":[],"gpt_button":0,"need_auth":false,"need_login_tip":false,"code":"91000000","status":"200"},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"isLaohu8Offline":false,"tenantId":"TBGLOBAL","deviceId":"web-server-community-laohu8-v3","version":"4.44.0","shortVersion":"4.44.0","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2644031279","isCrawlerRequest":true}