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LONDON: Copper prices were under pressure Monday morning, with London Metal Exchange (LME) three-month metal falling below the $10,000 per tonne level for the first time in a month.

Copper has spent the last few weeks hanging in suspended animation, the price too high for buyers to chase the market, supply too tight for sellers to risk shorting it.

The risk equilibrium appears to be shifting, however, with signs that funds are starting to raise bear bets on the CME copper contract.

Supply concerns haven’t gone away. Far from it.

Protests at two big copper mines in Peru knocked out a fifth of the country’s production capacity last week before the government imposed a state of emergency to regain control of the Cuajone mine.

However, the market focus is rapidly turning to the demand side of the copper equation, particularly in China, where lockdowns are already braking growth sharply in the world’s largest metals user.

Fund managers have been lifting bearish bets on the CME copper contract over the last couple of weeks.

Outright short positions stood at 45,012 contracts as of the close of business last Tuesday (April 19th), according to the latest Commitments of Traders Report.

They crept past the 2021 peak of 44,978 contracts last week and bear positioning is now as large as it’s been since May 2020.

There are still sufficiently significant long positions to keep the collective net speculative exposure marginally net long to the tune of 25,393.

But bears have been conspicuous by their absence for many months in the copper market and their cautious re-appearance is telling.

The bears’ return coincides with mounting concern about the outlook for demand due both to spreading lockdowns in China and the continuing war in Ukraine.

Shanghai, home to 26 million people and a major logistics and manufacturing hub, is entering its fourth week of total lockdown.

Many other cities are also being caught up in the government’s zero-COVID dragnet, with fears that Beijing could be next after the capital city began mass testing for all residents of its biggest district, Chaoyang.

The scale of national disruption is inevitably starting to affect the country’s giant manufacturing sector.

Factory activity slumped at the fastest pace in two years in March, the Caixin purchasing managers index sliding to 48.1, its lowest reading since the first pandemic wave early in 2020.

The official PMI also dipped into contraction territory, slipping below 50 for the first time this year.

New orders are falling particularly fast, reflecting both stalled domestic demand and the disruption to overseas markets caused by Russia’s “special military operation” in Ukraine.

As the latter rumbles on, attention in the metal markets has increasingly turned from the war’s immediate impact on supply chains towards the follow-through hit to demand.

Analysts at CRU have downgraded their forecast for global growth this year by half a percentage point to 3.5% to reflect the combination of rising inflationary pressures and sliding consumer confidence, particularly in Europe.

Industrial production will be weaker still at 3.4%, according to an April 5 webinar on the commodities impact of the war in Ukraine.

The first signs of the coming demand hit are starting to show up in countries such as Germany, where factory growth slowed to a 20-month low in April.

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