Copper: Scarcity and CTA buying skew – TD Securities

TD Securities' Senior Commodity Strategist Daniel Ghali highlights that unencumbered Copper inventories have fallen sharply year-to-date, leaving only 9.1 days of available supply versus 11.4 days at the start of the year. Despite visible warehouse builds and risk-off sentiment, Ghali argues Copper scarcity is unprecedented and expects CTAs to modestly add longs in most price scenarios over the coming week.

Unprecedented scarcity underpins CTA demand

"The red metal has most to gain from a swift resolution in the war, despite traders' concerns surrounding a glut of copper sitting in warehouses."

"A refresh of our proprietary estimates of unencumbered copper inventories suggest that unencumbered stockpiles of copper are actually substantially lower YTD, with only 9.1 days' available (vs 11.4 days' of consumption at the start of the year)."

"This dichotomy between sharply rising visible inventories and a concurrent decline in unencumbered copper inventories points to a continued reshuffling from invisible stockpiles into visible warehouses, which is inadvertently locking-up more metal."

"We think copper scarcity is unprecedented."

"Traders are fearful of the ongoing risk-off, but CTAs still have a substantial margin of safety in copper before the next selling program kicks in, and are now skewed to buy risk assets."

"CTAs will modestly add longs in most scenarios for prices over the coming week."

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