London 14/10/2016 - Copper has fallen out of favour, with LME trading volumes low and prices rangebound, which are sending investors scurrying for the exit doors.
The three-month LME price dropped to a one-month low on Friday, October 14 of $4,687. It recently traded at $4,693 per tonne, still down $19 on Thursday's close.
This afternoon's trading is crucial - a sub-$4,700 close could spark fresh selling, market participants warned.
The metal has been confined to a range of around $400 this year - it slumped to seven-year lows on January 18 of $4,318 per tonne before rebounding to a peak of $5,131 on March 17. But it then reversed direction and is now trading close to where it started the year at $4,716.
But it has been remarkably sticky in the mid-$4,000s this year due to fears about the Chinese economy, indications of oversupply and aggressive LME inventory moves.
"Unless demand surprises us, then, at best, it holds at recent levels," Société Générale analyst Robin Bhar said.
Describing copper as the "weak sister of the metals", Michael Lion at Lion Consulting Asia highlighted the absence of the investors in an "uninspiring" financial environment.
"There is nothing to entice the financial markets back. People think of a bear market and they think of a collapse - but it is not 2008/2009 and a bear market is actually more a case of lousy inactivity, which gives traders nothing to do - it is a pause of interest," he said.
This becomes a "self-fulfilling" cycle, he warned - clients are less inclined to take chances in such circumstances, reducing volumes and liquidity.
Strong supply is also weighing on the price - refined copper is the only LME-traded metal seen running a surplus this year, Macquarie said in a note.
"The copper price's 'disappearing act' compared with the high-performing commodities this year is rooted in this wave of supply availability and, specifically, concentrates availability," it added. "Recent question marks over Chile and scrap tightness notwithstanding, it is this sturdiness in mine output that is really holding copper back."
The bank has lowered its 2016 average price forecast to $4,685 per tonne, down 0.3% on its previous expectations. It also cut its 2017 and 2018 forecasts by 4.7% to $4,563 and 6.6% to $4,413 respectively.
Indeed, copper is about to hit a "wall of supply", according to an October 12 note by Goldman Sachs.
"We expect the main catalyst for the downside will be accelerating oversupply, but we are also conscious that we are entering a weak seasonal period for demand during which period inventories tend to build and prices often come under pressure," it said in the report.
Chinese demand also seems to be on shaky ground. According to trade data this week, China's imports of unwrought copper and copper products fell 2.9% month-on-month and 26.1% year-on-year to 340,000 tonnes in September - this was also the sixth consecutive month-on-month decline.
"If copper is indeed the bellwether of the global economy, then it doesn't make for a great or exciting story," Lion said.
"People are so used to dramatic shocks and expect instant gratification. They wanted to see a hard landing [in China] so they could react and get on with it… They prefer dramatic moves because it moves markets," he added.
In the absence of positive news and a steady contango in spreads - the benchmark cash/threes was last at a contango of $21 - price weakness prices looks set to persist.
"It looks like it will be a year of consolidation. I don't see an uptick in the fourth quarter and if I am honest I would write it off and come back in 2017," SocGen's Bhar said.
(Editing by Mark Shaw)