Copper has been moving in a flat. The market is now driven by two inverse factors, i.e. hopes for demand recovery from China and hawkish sentiment from the U.S. Federal Reserve (Fed). To confirm China's strong demand, economic statistics should come into play.
Fundamentals and SMM data suggest that copper inventories are increasing in China's key regions. Stocks in the downstream sector have been building moderately. Demand for copper in the refining and distribution segments did not get stronger, and it is unlikely to improve in the short term. Copper prices are predicted to remain high due to market participants' optimism and hopes for a revival of the domestic economy.
Thus, market players' optimism is based not on copper's inventories, but on the general market sentiment. If it is reversed, copper is likely to decline faster driven by two factors: high stocks and market sentiment.
On Thursday, Italy protested against European plans to ban new gasoline and diesel car sales by 2035. Minister of Infrastructure and Transport Matteo Salvini described a rapid transition to electric vehicles both as a "suicide" and a "gift" to the Chinese industry. But it would be time-consuming and cost-intensive.
The EU's zero-emission plan intended for the bloc of 27 countries, received approval from the European Parliament last Tuesday. The program implies a ban on fossil-fuel cars in 12 years.
Longer electric vehicles’ transition represents a potential threat to growing demand for copper in the long run.
Based on technical analysis, copper is trading in a rectangle, and now it is located near its upper boundary. This level corresponds to the lower boundary of the previous flat. It is possible to open short positions with a rebound target at the lower boundary of the current rectangle. The downside target will be the level of $8,820. Stop-loss can be placed at the upper boundary of the rectangle, which corresponds to $9,100.
Copper is likely to decline:
Take profit - $8,820
Stop-loss - 9100