As of now Cooper is in backwardation. The nearby contract, May is .017 over July which on the face of it is very bullish. Copper resisted the general liquidation in other markets. Would anyone have an idea for the reason for this bullish condition? Surely it is not the slowdown in Housing. I am aware how exports to Asia are affecting the market, anything else? Maybe lack of deliverable grade? Thanks in advance, GC
General dollar weakness & continued China strength is my guess. As far as the backwardation is concerned, that's not my expertise, maybe someone else can chime in. I'm not sure if .017 would be considered out of the ordinary. Funny I was also taking a very close look at copper this evening. I must say that both the daily and weekly charts are shaping up very nicely. I may look into making a swing trade here.
Commodities and even the underlyings for financial futures have carrying charges. For the convenience of holding and selling to you the cash copper at a future date they add storage costs, insurance, the cost of money and a bit of profit. That is why December ES is selling for more then September and September is selling for more then July. So the normal relationship is: Cash is cheaper then nearby and nearby is cheaper then the further outs. This condition is called Contagno (look at the Gold futures or YM or Cocoa for current examples) and when it is upside down it is Backwardation. Check my own description in Wikipedia. There are people who own metal in warehouses who keep hedging it in futures and earn the carrying charges. It is a way to make a living. When the spot copper cost more then the nearby futures they can't hedge their inventory and this alone creates an uneasy situation. But for the buyers it is worse because if they buy it at a premium at this price they can't hedge it or hedge it for less. In spite of the uncertainity for all involved the price refuses to go down. This condition is usually created when some entities siphon off all deliverable copper and it can't be replenished fast enough. This is a rare condition and it is worth paying attention to. I would not be surprised that people who supply the Chinese are gobbling up all that is available. It is even more significant that this is happening during a slowdown in the US housing market. I just thought we would hear from someone in the biz. Don't dismiss the .17/lb cents premium because nearby at premium is like an indicator of fever. Every single mega move starts out with this condition. GC
Good food for thought. Copper inventories are up. It's a base metal that is vital for basic construction, unlike gold & silver which have more advanced industrial uses. Never a bad metal to stockpile if you work closely with the aligned industries. There was a fund which got blown out by the Copper correction so they could have signalled the bottom. Could just be short covers, who knows. Fine with me, I have copper exposure.