TD Securities’ Senior Commodity Strategist Daniel Ghali notes that Copper prices have almost fully retraced losses from the Iran war despite heavy fund liquidations and weakening risk assets. He highlights unprecedented scarcity in unencumbered Copper inventories and argues that hoarding behavior is more persistent this time. Ghali expects Commodity Trading Advisors (CTA) (CTAs) to avoid selling Copper near term and sees scope for significant buying flows.

Inventories tight as CTAs eye buys

"Copper prices have nearly fully recovered from the war, despite significant investor liquidations."

"Under the hood, we have argued that commodity demand has continued to firm in the wake of the war in Iran, pointing to hoarding behavior akin to those seen in analogous geopolitical conflicts such as Russia-Ukraine."

"Most importantly, we think that unencumbered copper inventories are unprecedentedly scarce, owing to (1) metal locked up from consumption in China's SRB [State Reserves Bureau]; (2) landlocked US metal and (3) accounting for minimum working inventories."

"Looking forward, algos will not sell copper in any reasonable scenario for prices over the coming week, but a continued recovery in prices will catalyze buying programs totaling up to +13% of max size."

"Copper markets are inching towards a copper crunch."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)