Hedging activity by copper producers hits five-year highsPosted: April 4, 2011
In “Miners Bet on Falling Copper Prices,” the Financial Times reports that concerns over softening demand from China are driving copper producers to hedge more and more of their future output:
“‘For a while, hedging had become unfashionable. This has changed,’ said François Combes, head of commodities trading at Société Générale. ‘You have to go back at least five years to find the last time there was genuine hedging of this scale.'”
Currently, this seems to equate to a hedge of about 25% of production. This reported bearishness has not yet shown up in lower copper prices. An analyst in the article claims that copper prices have so far remained firm because producers are buying options instead of selling futures.
The robust recovery in copper prices has been led by Chinese demand. With other major economies experiencing sluggish growth, there is no likely buyer to fill any gap in Chinese purchases anytime soon. These dynamics imply that the volatility in copper prices could significantly increase in the near future without clear signs that Chinese demand will remain firm.