From Tyler Durden: Copper has never, ever, risen at such a torrid pace as this week. Blowing away any week’s performance of the last 30 years, copper futures are up almost 20% as hopes for Trump’s infrastructure spending extended its winning streak to an unprecedented 15 days in a row (up over 28%).
There is just one problem – just like we saw in Iron ore over the summer, speculation (reportedly from Chinese traders) is running wild.
So let’s not get too excite about Dr.Copper’s economics’ forecsting skills… and wait for margin hikes to suck the air of this bubble. Citigroup Inc.’s David Wilson said the run-up is being driven by Chinese speculators, and prices will retreat soon once the froth subsides. As Bloomberg reports,
An increase in trading fees and margins on Chinese commodities exchanges is prompting speculators to trade copper on the LME, Citigroup analysts including David Wilson wrote in an e-mailed note.
The Shanghai Futures Exchange on Thursday raised margin requirements for aluminum and other metals, after trading terms for iron ore, coal and other commodities were tightened by Chinese bourses.
While the surge “appears premature” and prices may fall toward the end of the year, stronger-than-expected Chinese factory data, falling global inventories, and additional spending by China on its power network all point to higher prices in the medium term, according to Citigroup.
“Fundamentals haven’t changed,” Mikinobu Ogata, senior managing executive officer of Sumitomo Metal Mining Co., said in Tokyo on Friday. “I don’t think there’s any change in supply and demand.”
The largest copped-focused exchange traded product, the iPath Bloomberg Copper Subindex Total Return Sub-Index ETN (NYSE:JJC), rose $1.06 (+3.62%) to $30.32 per share in premarket trading Friday. Year-to-date, JJC has gained 18.75%.
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