Copper Processors Stepping Up Bid

Copper processors feel pretty confident that the construction of all things will continue, whether this economic expansion is becoming long in the tooth or, not.

While we measure the data in the Commitments of Traders in traditional ways, we also quantify the actions of the markets participants, behaviorally. Static metrics provide us with recent highs, lows, average position sizes, and plenty of other hard data points that we can compare. However, one of the most critical keys in the analysis of the Commitments of Traders reports is the pace of the participants actions.

We want to know how excited the commercial traders are to transact business at a given price level. Well explain the process of measuring the last weeks moves in the COT report to the average net change of a given trading groups actions in detail at the July 23 TradersExpo in Chicago.

The copper market is currently exhibiting the commercial trader behavior for which we are looking. Commercial traders in the copper market are anxious to lock in the raw material supplies at $2.60 per pound. The December 18 contract made its low on August 16th, at $2.5745. The March 19 contract made a low at $2.5430, this January. Finally, the current September contract made a significant low on June 7th at $2.5995.

copper futures with commitments of traders

Most importantly, the net commercial position has increased in each of these declines. This pattern shows that the commercial traders are buying copper at higher prices. In fact, the commercial trader position reached higher a net long total on each successive decline. Theyve just set another net long high for the last year.

The commercial buying sprees show up on our screens as weeks where the commercial position has increased by more than two standard deviations compared to their average purchases. This shows that the copper processors, cable, and wire manufacturers are anxious to get their raw materials purchased at these prices.

These situations dont occur very frequently. Aside from this past January, and mid-September of last year, we have one episode in 2015 on the buy-side and have to go back to June of 2012 to find their next buying surge. That gives us four windows in the last seven years when copper processors were this anxious to shore up their supplies.

Their information is better than ours. Whether their current buying is enough to start an upward trend or, reverse the recent decline, we feel that this low is a buying opportunity.