Copper's Summer Slide: Can Traders Profit from July Futures' Seasonal Drop?

Globe and Mail

12-05-2025

Copper, the metal that wires our homes and powers our tech, is facing a pivotal moment. The July copper futures contract, traded on the Chicago Mercantile Exchange Group (CME Group), shows signs of a seasonal sell pattern, backed by research from Moore Research Center, Inc. (MRCI). With London Metal Exchange (LME) inventories shifting, China's economy slowing, and money managers adjusting their positions, traders can act. Here's what you need to know about this opportunity, including the data, trader actions, and products to consider.
MRCI's Seasonal Sell Pattern
Moore Research Center, Inc. (MRCI), a trusted source for futures traders, has identified a historical sell pattern for the July copper futures contract. Their data shows that over the past 15 years, selling the July contract on May 20 has resulted in it closing lower on or about June 19 for 13 of the past 15 years (87% occurrence). This pattern stems from seasonal demand cycles, where industrial demand often slows in the Northern Hemisphere's summer after a robust pre-home building season accumulation, particularly in construction and manufacturing, which are heavy copper users. MRCI's research highlights that this sell window typically opens after the seasonal high in March, aligning with reduced physical demand.
The logic is straightforward: copper demand dips as projects demand pauses for the summer, and traders who short the July contract may capitalize on this predictable price drop. While past performance isn't guaranteed, MRCI's quantified historical research makes this a compelling case for a short-term bearish play.
Source: MRCI
LME Copper Inventory Trends
Recent London Metals Exchange (LME) inventory data supports the potential for downward pressure on copper prices. As of April, LME copper stocks stood at 430,000 metric tons, down from a high of 600,000 tons in August 2024 but still elevated compared to historical averages. The decline reflects increased Chinese imports, yet global stocks remain robust, with 67% of LME copper from Russian and Chinese origins, much of it undeliverable to the US markets due to trade restrictions.
High inventories signal a looser physical market, which can weigh on prices when demand softens. The LME's cash-to-three-month spread has shifted to a contango of $34/mt in early April, indicating ample near-term supply compared to future delivery. This inventory cushion reduces the risk of a supply-driven price spike, reinforcing the seasonal sell thesis as demand will wane in the coming months.
China's Slowing Economy and Copper Demand
China, the world's largest copper consumer, is a key driver of global demand, accounting for nearly 50% of copper usage. However, its economy has been cooling, impacting copper prices. In Q4 2024, China's GDP growth slowed to 4.6%, down from 5.2% the previous year, driven by a persistent property market crisis and deflation risks. Industrial output, particularly in construction and manufacturing, has weakened, reducing copper demand for wiring and infrastructure.
Despite stimulus efforts from Beijing, domestic consumption remains sluggish. The Yangshan copper premium, a gauge of China's import appetite, has risen to $93 per ton, showing some demand recovery. However, this is offset by high domestic production and exports of refined copper. In December 2024, China imported 398,000 tons of refined copper, a 13-month high, yet Shanghai Futures Exchange (ShFE) inventories dropped to 74,000 tons, suggesting stockpiling rather than robust end-use demand.
The slowing Chinese economy, especially in copper-intensive sectors, aligns with MRCI's seasonal sell pattern. As summer approaches, reduced industrial activity in China could further depress demand, lowering July futures prices.
COT Report: Money Managers' Positioning
The latest Disaggregated Commitments of Traders (COT) report from the Commodity Futures Trading Commission (CFTC), dated May 6, 2025, reveals money managers' cautious stance on copper. Money managers hold a net long position of 23,338 contracts on the CME copper contract, down significantly from 70,504 contracts in February 2025. This reduction reflects fading bullish sentiment, with long positions slightly outweighing bearish bets. Short positions dropped from 53,207 contracts in February 2025 to 28,690, indicating less aggressive bearish conviction but a lack of strong bullish commitment.
This balanced positioning suggests money managers are wary of macroeconomic risks, including potential US tariffs under President Trump and a global trade slowdown. Their retreat from copper aligns with the seasonal sell pattern, as funds may await clearer signals before re-entering the market. Traders can interpret this as a lack of upward momentum, supporting a short strategy for July futures.
Source: CME Group Exchange
Trader Actions
Traders looking to act on this seasonal sell pattern have several options:
Short the July Copper Futures Contract: Enter a short position around May 20, targeting a price decline by July 19. Use stop-loss orders to manage risk, given copper's volatility. Monitor LME inventory updates and Chinese economic data for confirmation of weakening demand.
Spread Trading: Pair a short July futures position with a long position in a later contract, like September, to hedge against unexpected market moves. This leverages the seasonal dip while reducing exposure to broader price swings.
Monitor Key Levels: Watch copper's support at $4.00 per pound and resistance at $5.00 per pound on the CME July copper contract. A break below support could accelerate the sell-off, while a move above resistance might signal a need to exit.
Risk management is critical. Copper futures are highly leveraged, with a standard contract (25,000 pounds) requiring a margin of about $9,000. Micro contracts (2,500 pounds) require a margin of $900. Small price moves can lead to significant gains or losses, so position sizing and stop-losses are essential.
Products for Trading
Traders can participate using these CME products:
Standard Copper Futures (HG): Each contract represents 25,000 pounds of copper; each tick (0.0005 per pound) is $12.50 in US dollars. Ideal for institutional and experienced traders.
Micro Copper Futures (QL): A smaller contract of 2,500 pounds, with lower margin requirements, making it ideal for retail traders. Each tick (0.0005 per pound) is worth $1.25 per contract.
Options on Copper Futures: Buy put options to profit from a price decline with limited risk, or sell call options to collect premiums if prices stay flat or fall.
In Closing…
The July copper futures contract presents a compelling seasonal sell opportunity, backed by MRCI's historical research showing a consistent price decline from mid-May to early July. Elevated LME inventories, a slowing Chinese economy, and cautious money manager positioning in the COT report reinforce this bearish outlook. Traders can act by shorting futures, using spreads, or monitoring key price levels, with standard futures, micro futures, or options as viable tools. While risks like geopolitical events or supply disruptions could alter the trajectory, the confluence of seasonal, fundamental, and market sentiment factors makes this a trade worth considering. Stay vigilant, manage risk, and let the data guide your moves.