Fed Near Neutral Signals Caution Ahead, Shifting Focus to Fixed Income in 2026 
So far this year, copper supply at all stages of production has outperformed our expectations. At the moment our estimate of 2016 annualized production is 1.6% higher than our November 2015 estimate.
The summer lull in demand is pulling regional premiums lower with the situation in China exacerbated by rainy weather in the north of the country.
Although Chinese refined production is growing amid very profitable treatment charges, the major maintenance shutdowns were hampering demand in 1H and now the smelters are running at full capacity with copper cathode production up 7% YoY in 1H2016.
We reckon the copper is likely to underperform on rising supply and the slowdown in China. We look ahead for gold to trade higher towards $1,400/oz near-term.
While the recent macro-driven rally in base metals has disrupted the bear market, we still foresee downside to copper prices from a fundamental perspective in the coming quarters.
Cost deflation continues to sink the marginal cost support levels as the mine supply profile continues to grow despite mine closures announced last year and the weak prospects for demand this year.
Simply put, we believe prices need to move lower to induce more supply adjustments; as such, we forecast that spot prices should dip to average $4,400/t in 3Q16.
We chose to use the early-summer rally as an opportunity to add to this position at a price of $4,904.75/t on July 28 in equal proportion to our original trade (entered at $4,625.50/t), increasing our overall breakeven to $4,765.13/t.
We recently advocated bearish stance on copper, for reading on this post please follow below link:
Went short Dec’16 LME copper on August 5th with a trade target is $4,000/t with a stop at $5,250/t, we continue to maintain existing shorts in mid-month futures.
