Barclays’ analysts point out that an improvement in the global economic outlook is not yet evident in the data. As they commented in a report on Tuesday:
“There is little doubt that fund buying of copper has been unusually heavy recently, but it is probably not big enough to have independently influenced price movements. Speculative copper positioning has been volatile so far this year, but around a steadily rising trend. At around 900kt, the net LME and COMEX long position held by managed money funds is now back at the levels prevailing for most of 2014, before the steep fall in oil prices caused rapid long liquidation. Paradoxically, speculative buying of copper appears to have been getting a boost recently from poor economic data out of the US (because it weakens the dollar) and out of China as well (because it makes a metals intensive boost to growth more likely).
However, the share of speculative net length in copper is still relatively small at just 6% of total open interest (in precious metals it regularly accounts for over 50% of the market and in oil is often more than 15%). Therefore, it seems unlikely that speculative buying is the main factor behind copper’s price rise.
Second, although copper miners as a group are known for consistently missing production targets and remain relatively supply constrained, this year disruption losses have been slightly lower than expected. Heavy rains in Chile and power shortages in Zambia have been the main drags so far. However, in terms of lost copper units, these add up to less than the 3% allowance we use in our model (see: Copper Disruption Tracker: Adding up, but still within expectations, 1 May 2015).
Third, the demand picture appears to be improving fast and seems to be the main factor supporting the price recovery. China’s response to the slowdown in growth has been to sanction a large number of previously delayed infrastructure projects and grid spending is also set to grow rapidly over the rest of the year, both of which should add to its copper demand. China’s April unwrought copper imports totalled 430kt, the highest in 12 months and a huge recovery from the low point of 280kt in February.”