Copper dropped on profit booking after inventories in SHFE rose 18.5%.

Copper prices experienced a slight dip of -0.4% to settle at 734.15 yesterday, primarily due to profit booking triggered by an 18.5% surge in inventories monitored by the Shanghai Futures Exchange compared to the previous Friday. This increase in supply weighed on market sentiment. China, in its efforts to bolster its economic recovery, took several measures, including a reduction in the reserve requirement ratio (RRR) by the People’s Bank of China.

This move, the second of its kind in the year, aims to enhance liquidity in the financial system, emphasizing the country’s commitment to supporting its post-pandemic economic rebound. Copper stocks in LME-registered warehouses reached their highest levels since October 2022, owing to substantial growth observed from July to September. However, it’s important to note that China’s economic data painted a positive picture, with retail sales surging by 4.6% YoY in August 2023, exceeding market expectations and marking the eighth consecutive month of growth. Industrial production in China also picked up, growing by 4.5% YoY in the same month, surpassing forecasts. 

From a technical standpoint, the market saw long liquidation, evidenced by an -11.2% drop in open interest, settling at 3886. Copper prices dipped by -2.95 rupees. Support for copper is currently at 730.8, with the potential to test 727.4 if breached, while resistance is expected around 740, and a break above could lead to a test of 745.8.