Citi Warns Copper Looks `Oversold' as Short Bets Approach Record

  • Citigroup says rise in shorts may exacerbate price swings
  • Highly levered retail investors exposed to margin calls: Citi

Copper bears may have gone too far this time.

Money managers are holding the biggest net-short position in two years in copper futures traded in New York, U.S. government data show. Total bearish wagers doubled last month, approaching a record set in August even as prices have dropped more than 10 percent since then. 

Now Citigroup Inc. says the metal may be “oversold” and that the near-record short position could exacerbate price swings in 2016.

Net-short positions in copper futures and options surged in the past five weeks to 36,893 contracts, the most since April 2013, when they reached an all-time high, according to the Commodity Futures Trading Commission data Friday. On the London Metal Exchange, money managers trimmed their net-long positions for five straight weeks, while in Shanghai, the 20 largest brokers are cutting their bullish bets, according to exchange data.

“Copper prices across most major exchanges appear oversold in our view, as funds continue to pile-on short positions,” Citigroup analysts including Aakash Doshi and David Wilson, wrote in a report Monday. “The dangers of being too short could expose highly levered retail investors to margin calls and exacerbate copper price volatility into 2016.”

Copper futures for March delivery fell 1.3 percent to settle at $2.051 a pound at 1:13 p.m. on the Comex in New York.

Prices have plunged 27 percent this year, poised for a third annual loss, the worst streak since 1998, as demand concerns mount amid the slowest economic growth in a generation in China, the world’s largest user of the metal. Adding to copper’s woes is the strengthening dollar, buoyed by the outlook for rising interest rates in the U.S. The deteriorating emerging-markets outlook has helped push copper lower “despite price-supportive mine-supply disruptions, closures” and cuts to capital spending, Citi said.

In 14 of the 20 trading days in November, Comex copper’s 14-day relative strength index was below 30, a level viewed by some traders who study charts as a signal the security is oversold and is poised to rebound. The RSI was at 36 on Monday.

A gauge of the largest base-metals producers tracked by Bloomberg Intelligence fell to the lowest since 2008 on Monday, led by Teck Resources Ltd. and Freeport-McMoRan Inc. Supply reductions may help buoy prices. Glencore Plc and Freeport are among miners that have said they’re cutting back production of copper and other metals.

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