Over the past month, managed funds have conducted their second major sell-off of high-grade copper futures. From September 29 to October 6, managed funds sold $2.8 billion, exceeding the size of the most recent concentrated liquidation and marking the largest single-week sell-off since April 2023, with 90% of the sell-off coming from liquidation.
A stronger US dollar appears to be the reason for the shift in sentiment. Influenced by factors such as the Middle East war and European sovereign credit pressures, the dollar is approaching a one-year high. Historically, the week-on-week change in managed funds' high-grade copper long positions has been negatively correlated with the US Dollar Index (DXY). Other technical and structural factors cannot explain this sell-off: for example, the expansion of transatlantic arbitrage opportunities, i.e., the strengthening of high-grade copper relative to the LME; and the fact that Goldman Sachs' data center basket has been rising throughout the observation window.
Physical participants again absorbed speculative selling, buffering prices. Producers/traders/processors/users and swap dealers collectively added $1.9 billion to their long positions, resulting in a real increase of 0.70% in the December contract. As of October 6, PMPU long positions accounted for 12.9% of total open interest, near multi-year highs.
In subsequent trading days, advanced copper rose slightly, driven by supply disruptions and Asian restocking. From October 6 to 9, advanced copper rose 0.6%: Antofagasta's Chilean copper miners announced a hunger strike, and Asian buying returned after the holiday.
However, open interest indicators remained mixed, leaving more room for speculative funds to re-enter the market. Total open interest in advanced copper increased by $950 million, indicating some new long positions; however, the options market reflected growing concerns, with the standardized 25-Delta bearish-bullish bias widening.
