Copper Tightness, CTA Positions Highlight EM Imbalances

Key Moments

Strategist Flags Deepening Copper Supply Constraints

TD Securities’ Senior Commodity Strategist Daniel Ghali underscores a significant tightening in freely available copper stocks so far this year. According to the firm, estimates of unencumbered copper inventories indicate that accessible supply has fallen to the equivalent of 9.1 days of consumption, compared with 11.4 days at the start of the year.

Ghali characterizes current conditions as highly unusual, emphasizing that this drawdown is occurring even as headline warehouse data and broader risk-off market sentiment might suggest a more comfortable backdrop.

Visible Builds vs Unencumbered Supply

The firm highlights a notable separation between what is visible in reported storage and what is actually available to the market. While warehouse stocks have been rising, TD Securities’ internal metrics show that unencumbered inventories – those not already pledged or otherwise restricted – have been shrinking markedly on a year-to-date basis.

This divergence is framed as evidence of ongoing movement of material from less transparent, “invisible” stockpiles into reported storage facilities. Ghali notes that such a transition can have the effect of sequestering more metal, as inventory that appears in visible warehouses may be encumbered and therefore not readily accessible to satisfy incremental demand.

Ghali’s Commentary on Market Structure and Scarcity

Ghali points to the potential market implications of this tightening backdrop for copper, particularly in the context of ongoing geopolitical risks and investor positioning. In his view, the metal stands to benefit from a more favorable macro environment should current sources of uncertainty be resolved.

He states: “The red metal has most to gain from a swift resolution in the war, despite traders’ concerns surrounding a glut of copper sitting in warehouses.”

TD Securities’ updated assessment of unencumbered stocks underpins a much more constrained picture of supply than headline inventory figures alone might indicate. As Ghali explains: “A refresh of our proprietary estimates of unencumbered copper inventories suggest that unencumbered stockpiles of copper are actually substantially lower YTD, with only 9.1 days’ available (vs 11.4 days’ of consumption at the start of the year).”

He further details the structural shift underway: “This dichotomy between sharply rising visible inventories and a concurrent decline in unencumbered copper inventories points to a continued reshuffling from invisible stockpiles into visible warehouses, which is inadvertently locking-up more metal.”

Summarizing the firm’s view on the fundamental backdrop, Ghali adds: “We think copper scarcity is unprecedented.”

CTA Positioning and Risk Sentiment

Despite the broader risk-off tone that has affected many markets, TD Securities notes that trend-following and systematic strategies still have room before they would be forced into another round of selling in copper. Ghali acknowledges that investors remain cautious, but he argues that current positioning metrics point toward a bias to accumulate risk in the metal rather than reduce exposure.

As he puts it: “Traders are fearful of the ongoing risk-off, but CTAs still have a substantial margin of safety in copper before the next selling program kicks in, and are now skewed to buy risk assets.”

With that in mind, TD Securities anticipates that systematic participants will slightly increase their bullish exposure in the near term. Ghali concludes: “CTAs will modestly add longs in most scenarios for prices over the coming week.”