U.K., November 11, 2016 (Bloomberg): Traders are buying copper like never before in what Citigroup Inc. says may be a premature rally driven partly by Chinese speculators.

Prices have surged 26 percent in the space of 15 days and are set for the biggest weekly advance since records begin in 1986. As a gauge of buying and selling shows the metal is the most overbought it has ever been, Citigroup said the “speculative arb-trading” in China is likely to cool, setting up a potential correction in prices by the end of the year

Copper is on a tear, after lagging behind its peers for much of this year, amid speculation that U.S. President-elect Donald Trump’s infrastructure spending plans will boost demand for the metal. An increase in trading fees and margins on Chinese commodities exchanges is prompting speculators to trade copper on the London Metal Exchange, Citigroup analysts including David Wilson wrote in an e-mailed note.

The Shanghai Futures Exchange on Thursday raised margin requirements for aluminum and other metals, after trading terms for iron ore, coal and other commodities were tightened by Chinese bourses. While the surge “appears premature” and prices may fall toward the end of the year, stronger-than-expected Chinese factory data, falling global inventories, and additional spending by China on its power network all point to higher prices in the medium term, according to Citigroup.

Goldman Sachs Group Inc. was more circumspect. Analysts including Max Layton and Jeff Currie said in a note that copper’s rally could reverse abruptly in the first quarter on a pickup in supply and slowing demand and credit growth in China. The bank favors zinc and nickel in 2017, which are either in deficit or more directly exposed to U.S. stimulus, it said.

More broadly, as global demand prospects and sentiment improve, the bank’s metal forecasts are under review with risks skewed to the upside, it said.
Source: Bloomberg