Chinese traders are growing more bearish on Copper, TDS senior commodity strategist Daniel Ghali notes.

Copper shorts grow, Aluminum is on a roll

“Our tracking of positioning for the top traders on Shanghai Futures Exchange (SHFE) Copper highlights a substantial increase in traders' net short positions, with the top ten participants adding more than 10k SHFE lots to their books short over the last week, equivalent to 51.5kt of notional Copper sold short. This fits with reports that China's State Grid may have slowed Copper wire purchases in favor of Aluminum wire.”

“Real-time demand expectations embedded within commodity prices continue to decline at a fast clip, pointing to a hangover from previous stockpiling alongside a deteriorating demand outlook, suggesting downside momentum pressures continue to build in the red metal. CTAs are fighting against this trend, however, and are likely to buy Copper this week in every plausible scenario, even in a big downtape.”

“These flows could create a set-up to engage in downside, with China's Third Plenum unlikely to deliver the large fiscal stimulus that is required to turn the tide, focusing instead on structural reforms. Aluminium remains most vulnerable to downside in the complex, with a large downtape potentially forcing CTAs to completely liquidate their books long.”