Amid market turmoil, Doctor Copper isn't panicking... yet
LONDON (Reuters) - London Metal Exchange (LME) copper tumbled to a three-year low of $5,433 per tonne on Monday.
This was hardly surprising given the turmoil unfolding in the broader financial universe.
“Doctor Copper” is the most financialised of the LME industrial metals, meaning the metal was always going to take a double-whammy hit from simultaneous oil price implosion and global stock market collapse.
What is surprising, though, is copper’s swift recovery. LME three-month metal was this morning trading back above $5,600 per tonne.
Zinc and aluminium also swooned to multi-year lows of $1,913 and $1,644 respectively on Monday, but they too have bounced back with a vengeance. Nickel and lead appear positively sanguine about the broader market disorder.
But then industrial metals such as copper were among the earliest coronavirus casualties. Copper was trading at an eight-month high of $6,343 per tonne in January before news of the outbreak in Wuhan sent it tumbling lower.
Funds then either left the base metals space or positioned themselves on the short side, fearing a derailment of China’s expected manufacturing revival.
This positioning landscape seems to have spared copper from the Monday mayhem in global markets.
So too does the metal’s demand dependence on China’s giant manufacturing sector.
While other markets react to the spread of the virus to countries such as Italy, copper’s focus is on signs of a recovery in China itself.
As fund managers rushed to get out of risky assets on Monday, copper was in part spared because there wasn’t much to de-risk.
Longer-term investment money gave copper and other base metals a wide berth over most of last year, fund managers fearing that the Sino-U.S. trade dispute was compounding a cyclical Chinese manufacturing slowdown.
The money men only started creeping back into copper in the closing days of 2019 as a trade truce broke out and China’s manufacturing activity showed signs of renewed momentum.