Copper prices slipped overnight as investors worried that US-Chinese trade talks would make little progress but the metal remained vulnerable to a squeeze higher in the event of positive news due to an increase in bearish positions, an analyst said.
US President Donald Trump said on Monday that a quick trade deal was unlikely and his administration also blacklisted Chinese companies over Beijing authorities’ treatment of predominantly Muslim ethnic minorities.
“The consensus remains sceptical about a resolution but a mini-deal, just on tariffs, might be a concrete expectation,” said Gianclaudio Torlizzi, partner at consultancy T-Commodity in Milan.
“The risk-reward now points to the upside for copper and aluminium in particular because the short positioning is elevated,” he said.
“This makes them vulnerable to a squeeze higher in case a truce between the US and China is reached.”
The net speculative short position for LME copper has risen to 12 per cent of open interest, the highest in a year, while for LME aluminium it has climbed to 31 per cent, according to estimates by Marex Spectron, the broker’s Alastair Munro said in a note.
Chinese-US trade talks are due to begin in Washington DC on Thursday, the first minister-level negotiations in several months.
Three-month copper on the London Metal Exchange (LME) fell 0.8 per cent to $US5,675.50 a tonne in final open-outcry trading, trimming gains of 1.4 per cent in the previous session.
Chile’s Antofagasta has requested government mediation to resolve a contractual dispute with supervisors at its flagship Los Pelambres copper mine, the supervisors’ union said.
The discount of LME cash copper to the three-month contract increased to $US36.90 a tonne by Monday’s close, the highest since August 2018, indicating plentiful supplies in the LME system.
It was last at $US36.65 on Tuesday morning.
LME nickel inventories continued to fall on Tuesday to 117,522 tonnes, the lowest since August 2012.
Three-month LME nickel fell as much as 3.3 per cent to a one-week low of $US17,135 a tonne but later pared the losses to finish at $US17,570, a decline of 0.9 per cent.
It slipped for a second day after jumping 3.4 per cent last week amid a drawdown in stocks.
Commerzbank has upgraded LME lead and expects prices to target $US2,241/$US2,311.50, a note said.
“LME lead’s unexpected advance above resistance at $US2,136.50/$US2,179.50, consisting of several daily highs made in February, made us change our forecast to a bullish one.”
LME aluminium closed 0.3 per cent firmer at $US1,751.50 a tonne, zinc added 0.4 per cent to reach $US2,298, lead slid 2.0 per cent to $US2,145 while tin rose 0.4 per cent to $US16,395.