hedge funds turn bearish Market faces difficulty in moving higher Copper held back as

Print this page Posted on : 04-23-2008 by recycleinme.com

The apparently bullish outlook for copper emanating from last week’s annual CESCO meeting in Chile isn’t translating into higher prices because a number of hedge funds hold an opposing, and increasingly bearish, point of view.

While this means there are a number of financial short positions to cover in the event that copper stages a price rally, traders said the market was finding it increasingly difficult to make its much- anticipated move higher.

For sure, copper made a fresh, record- high on Thursday as the dollar plumbed lifetime lows and oil hit record highs, pulling the base metals’ inflationary hedge properties to the fore. London Metal Exchange copper prices peaked at $ 8,880 a tonne, prompting a sigh of relief from copper bulls frustrated at the market’s lack of progress in recent days.

FUND PARTICIPATION

However, the gains have been short- lived, with copper dropping some 5 per cent to $ 8,430/ tonne on Friday as participants encountered a wall of sellers above $ 8,800/ tonne. The less- than bullish outlook among hedge funds is neither widely publicised, nor held by all investors. The perception of fund participation in the metals markets, and particularly in copper, is that investors are long- only, and extremely bullish. After all, the weight of fund flows into copper has been responsible for a large proportion of the market’s gains.

DOMESTIC DEMAND

A battle by one hedge fund short to outsmart another rival hedge fund long is also playing a part in keeping prices under pressure right now, market participants added.

While LME warehouse stocks are at around 3 days’ consumption, there’s a sense that the market in China is supplied enough to meet domestic demand. The latest Chinese trade data proved this theory out, with exports of copper rising in the first quarter compared with the same period of 2007.

There’s also been talk that the supply side tightness isn’t as severe as it would initially appear. According to market comment, a number of hedge funds and merchants have been buying copper and storing it in warehouses off- warrant, which means it doesn’t show up in exchange inventory data.

Market dynamics

A battle by one hedge fund short to outsmart another rival

hedge fund long is playing a part in keeping prices under pressure right now.

The end- result is that the copper market looks a lot tighter

than it is, leaving more room for prices to rise.

Source : Business Line