LONDON, Nov 2 (Reuters) – The slowdown in China’s manufacturing sector is casting a growing shadow on the copper market.

The country’s official purchasing managers index (PMI) was 49.2 in October, down from 49.6 in September and the second consecutive month of contraction. Environmental restrictions, energy rationing and rising commodity prices combine as a powerful brake on the activity.

“Metals Can’t Ignore China’s Slow Any Longer,” was the headline of a Nov. 1 research note from Capital Economics, which reports growing unease over the outlook for copper prices as demand continues to rise. of the world’s largest user gets colder.

The funds, however, show no tendency to short copper just yet. And who can blame them given the continued weakness in equities and the extreme tightening of spreads in the London market?

THE FUNDS PLAY IT BY CTÉ LONG

The turmoil of the past month, which saw the London Metal Exchange (LME) copper price climb to $ 10,452.50 per tonne over three months, pulled the fund’s money to the long side.

Fund managers took their long position in the CME copper market to a five-month high of 82,538 contracts, alongside the price movement.

This collective bullish bet fell to 77,317 contracts in the last Trader Commitments Report (COTR), but was still surprisingly high given that the price had already collapsed below the $ 10,000 level.

The COTR is capturing the positioning at close of business last Tuesday (October 26) and it is entirely possible that there was a further reduction in bullish positions this weekend.

Broker LME Marex, for example, notes strong fund sales through the end of the month and estimates that the net long fund in the London market has fallen from 8% of open interest on October 20 to just 1% on Friday.

What really stands out, however, is the absence of any new short positioning despite copper pulling back to $ 9,500 per tonne and the darkening macro outlook.

Firm short positions on the CME contract currently total only 29,721 contracts, down slightly from early October.

Fund managers seem happy to adjust their long positioning as price turns but remain reluctant to go short.

ALWAYS TURBULENT

What dissuades them is the savage decline that still rages on the London market.

The intervention of the LME on October 19 in the copper market gave a semblance of order to the shortest deadlines, as expected.

But the cash-three-month benchmark gap remains extremely remote. The cash premium at Monday’s close was $ 438 a tonne, which, until the chaos of last month, would have been the highest in this century.

The underlying problem remains the chronic weakness of the stock markets.

The tempting premium for physical delivery has lured the metal into LME warehouses, but total arrivals of 21,075 tonnes since mid-October have been disappointing.

The South Korean port of Busan received 7,700 tonnes, the remainder being spread over seven sites in Europe, Asia and the United States. Absent is the kind of heavy volume one would expect with a historically high premium for delivery in exchange.

What has happened over the past two weeks has not made up for the daily departures, with LME inventory figure sliding to 123,925 tonnes, the lowest since the first day of June.

More importantly for those holding short positions, the amount of tonnage available in the LME warehouse system increased only marginally from October’s multi-decade low of 14,150 tonnes to 31,675 tonnes.

It’s far from any kind of comfort zone, which is why the front part of the front curve can be tidy in the regulatory sense of the LME term but is still very turbulent.

Too turbulent, it seems, for macro bears to dare to express their views.

MICRO ASSET MACRO … FOR NOW

Copper has been caught between a deteriorating macroeconomic outlook and the strength of its own micro momentum for several months.

The nature of the raid on LME stocks – massive cancellations of tonnages available in the first half of October – remains controversial.

But it’s worth noting that global stock stocks, including those at the LME, CME, and Shanghai Futures Exchange warehouses, have fallen in the past two months.

They amounted to a cumulative 232,550 tonnes at the end of October, down 30,000 tonnes since early 2021 and nearly 150,000 tonnes compared to October 2020.

Shanghai stocks currently total less than 50,000 tonnes, despite obvious weakness in key end-use sectors such as construction.

The Yangshan copper premium, a closely watched indicator of China’s import demand, has fallen sharply from its October high of $ 140 per tonne to $ 89, but it is still much higher than the June low of $ 21, suggesting continued supply chain tension in the Chinese market. .

Combined with the glaring lack of significant inflows into the LME system despite the roaring pullback, the fundamental market outlook still looks bullish.

With no sign of a major replenishment and dissipation of the LME seal, it appears the copper micro-image is still strong enough to keep macro bears at bay.

Editing by David Clarke

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