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Below the Perspective by Ms.Riya Singh – Research Analyst, Commodities and Currency , Emkay Global Financial Services Ltd

New York spot copper prices have been higher than future contracts making it very difficult for those who are short. The July-delivery Comex contract happens to be at a 7.4 cents per pound premium over the September contract. This is an example of backwardation that implies supply failure and repeats last month’s historic 29.25-cent backwardation that severely affected traders with short positions.

Spot contracts in Shanghai and London trade heavily discounted compared to their future counterparts pointing to better supply conditions in the global copper market. However, it is a different story in the US where Comex warehouse inventories have fallen to their lowest level since 2003. In these circumstances, traders are urgently looking for specific copper brands to use as delivery against US contracts hence they have no choice but close some shorts.

As the July contract runs out of time many short sellers are getting squeezed to cover. This is causing a big backwardation. For those who can’t deliver the copper they’re short, their only option may be to buy back their shorts and roll them forward to later dates. This puts them at a disadvantage to longs who will make money.

The recent short squeeze was partly driven by a big influx of money from bullish fund managers which pushed the NY copper contract to all-time highs. London and Shanghai saw similar price moves but those have pulled back as some investors took profits and near term demand concerns emerged. Copper is trading higher 

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