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Some big Chinese commodity funds are positioning for a short-term uptick in metals prices despite a poor longer-term outlook, expecting supplies to tighten over the next three to six months as Beijing acts to strengthen its economy. Chinese commodity funds have been blamed for pulling down copper prices in particular the last two years, but at least two large funds have started backing away from bearish bets on metals.
Sources at three large funds said some fund managers had covered part of their short positions on iron ore and non-ferrous metals futures over the past week, hedging for the possibility that prices might rise in the short-term. The market could tighten noticeably, the sources said, as demand picks up due to government infrastructure projects and stockpiling - just as non-ferrous supplies start to fall due to cuts by Chinese smelters. Copper, aluminium, nickel and zinc producers have announced planned cuts.
"Recently the overall views among funds are leaning towards bullish on metals for the next three to five months," said a source at a large fund in Shanghai. "Like us, many have covered shorts these days. Some may have even opened small long positions." The three sources all declined to be identified due to company policy. Data from the Shanghai Futures Exchange showed that the volume of short positions on copper and aluminium futures had dropped 2-4 percent since the beginning of December. State media have reported that the government will introduce measures to make its monetary policy more flexible in 2016, expand its budget deficit to support a slowing economy and push forward "supply-side reform".

Copyright Reuters, 2016

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