Copper Volatility Climbs to 18-Month High as Outlook DivergesClaudia Carpenter
Copper is the most volatile in 18 months as signs of economic growth in China, Europe and the U.S. counter wagers that prices are going to keep falling.
The average 10-day price moves for copper delivered in three months on the London Metal Exchange jumped to an annualized 47.027 percent on May 3, the highest since Nov. 3, 2011, according to data compiled by Bloomberg. It’s now at 46.8298 percent. Hedge funds increased bets on lower copper prices on Comex in New York for the first time in four weeks, U.S. government data show.
Copper fell 5.9 percent this year as swelling inventories in warehouses monitored by the London Metal Exchange heightened speculation that production was growing faster than demand. Today, China’s trade and German industrial output beat estimates after U.S. payrolls expanded last month. French Finance Minister Pierre Moscovi declared the era of austerity over after his German counterpart offered flexibility on deficit cutting.
“This stuff at the margin, in the context of a market that was very short, is enough to make people potentially change their views from very bearish to neutral,” Max Layton, an analyst at Goldman Sachs Group Inc. in London, said by phone today. “The shift from bearish to neutral is contributing to the volatility on the leg up.”
Copper for delivery in three months jumped 2.2 percent to $7,426.75 a metric ton at 4:06 p.m. on the LME, after rallying 6.2 percent on May 3 after the U.S. jobs report. Copper outperformed the Standard & Poor’s 500-stock index, which climbed 1.1 percent on May 3 and is up 0.2 percent today.
Chinese exports surged 14.7 percent in April and imports advanced 16.8 percent last month, data from the General Administration of Customs showed. German industrial production increased for a second month.
“The very recent outperformance of copper relative to other risk assets in our view reflects fundamental support,” Layton said in a report dated yesterday. Stockpiles of copper dropped on May 3, after global inventories fell in April, and Chinese producers are cutting refined production, citing scrap tightness and possible selling of short positions, he said.
Funds and other large speculators raised their net-short position in Comex copper by 49 percent to 23,368 futures and options as of April 30, U.S. Commodity Futures Trading Commission data show.
“The market generally got extremely bearish China, short term,” Layton said in the interview. “There was a lack of scope for people to believe there would be decent global growth at some point in the near term, and particularly about China. The data that’s come out in the last couple of days has changed that view.”