In a comprehensive analysis titled "A Blood-Bath in Metals in July!?" Andreas Steno, a renowned analyst at Steno Research, warns of significant risks in the metals market as July approaches. According to Steno, the buildup of copper on Chinese exchanges is a critical factor that could signal major disruptions ahead.
Steno points out that the accumulation of copper reserves on Chinese exchanges might not be the strategic reserve-building that some speculate. "If China really wanted to build up reserves, why isn’t the copper leaving the exchange(s)?" he questions. This accumulation, according to Steno, might be "sending a signal" but also "screams bearish vibes about Chinese end-user demand."
The Chinese construction sector, traditionally a major consumer of copper, remains sluggish with no signs of rebound. Steno highlights that "up to 30% of China’s copper consumption was tied to real estate activity as recently as 2022." He adds, "the building activity in China isn’t bouncing back at all," casting doubt on the optimistic copper narrative held by many in the market.
Adding to the complexity is the overall liquidity environment, which has seen significant fluctuations. Despite expectations that Quantitative Tightening (QT) would dampen liquidity, Steno explains that "the supposed negative liquidity effects of QT programs in the US have been effectively nullified since Q4 2022 thanks to the TGA, the ON RRP, the BTFP, and other liquidity tricks up the Fed’s sleeve." Looking ahead, he notes that "July looks extremely bullish again from a liquidity standpoint."
However, this positive liquidity outlook contrasts sharply with troubling signs of weakening demand. Steno notes that "both US and UK credit card data have been weak through May and early June," which raises concerns about overall consumption trends.
In the commodities market, Steno advises caution, particularly with copper and silver. He notes that "Copper positioning remains outrageously long," and with the anticipated flood of Chinese copper into the market, July could see a sharp correction. He stresses that those who believe in the continued upbeat economic surprises over the summer should expect "the Copper Comex curve to move into extreme contango between July and September deliveries."
For more detailed insights and charts, visit the full article on Steno Research.