Unlock stock picks and a broker-level newsfeed that powers Wall Street.
COLUMN-Fund managers down but far from out in the copper market: Andy Home

(Repeats April 19 column. The opinions expressed here are those of the author, a columnist for Reuters)

* http://tmsnrt.rs/2pAGO0P

* http://tmsnrt.rs/2pBzQby

By Andy Home

LONDON, April 19 (Reuters) - Copper's bull momentum from the start of the year is fading as the disruption premium from supply hits at the world's two largest mines unwinds and broader risk-off turbulence also joins the mix.

Three-month copper on the London Metal Exchange (LME) slid through $5,600 on Tuesday to hit $5,568.50 a tonne, its lowest level since January. And though it staged a small bounce on Wednesday morning, at $5,630 copper's year-to-date gain stands at a little more than 2 percent, having been up almost 11 percent in February.

On the supply side, a strike at Escondida in Chile has ended, albeit after a longer than expected 43 days, while a temporary compromise on export shipments should allow the Grasberg mine in Indonesia to ramp up towards more normal operating rates.

There is no shortage of potential further flashpoints in the supply chain, but for now copper is drifting.

Unsurprisingly, the weaker tone in pricing has seen a significant tempering of fund long positioning in the market. What's curious, though, is that funds remain as committed as they are, particularly on the CME's copper contract.

Has CME tapped a whole new source of managed money? Or is it part of a bigger rotation of funds into the commodity sector? Or maybe a bit of both?

Graphic on money manager positioning on the CME copper contract: http://tmsnrt.rs/2pAGO0P

Graphic on money manager positioning on the LME copper contract: http://tmsnrt.rs/2pBzQby

STILL COMMITTED

The latest Commitments of Traders Report (COTR), covering trading to April 11, showed funds holding a net long position of 55,512 lots on the CME's copper contract.

That's a sharp reduction from the peak of 101,139 contracts registered in the last week of January. Expressed in terms of open interest, funds have trimmed net long positioning from almost 35 percent to 19 percent over the same time frame.

In broad terms the same unwinding of speculative length has played out in the London market.

The LME's own COTR shows funds net long at 58,593 contracts as of April 7, down from a peak of 80,478 contracts in mid-December.

None of which is surprising, given that the money manager category in both reports captures the Commodities Trading Advisor (CTA) community, large parts of which use trend-following algorithms.

This means that positioning often tends to follow price evolution. A period of price drift, such as seen over the past few weeks, will tend to translate into fewer longs and more shorts.