LONDON (The opinions expressed here are those of the author, a columnist for Reuters..)
This time last year the base metals complex was all doom and gloom.
The London Metal Exchange (LME) index of prices touched 2,049 in January 2016, its lowest reading since the dark days of January 2009, when the world seemed to be spiraling into full-blown depression.
China came to the rescue then and it came to the rescue again last year, Beijing policymakers once again pumping money down the twin metals-intensive channels of infrastructure and construction to reinvigorate economic growth.
The LME index has since recovered to 2,768. True, performance has been mixed, largely reflecting each individual metal's supply dynamics.
But the worst seems to be over for base metals prices, with more upside to come. That, at least, is what fund managers are betting on.
There was some marginal reduction in fund positions over the course of December but the money men appear to be largely keeping the faith with the broader turnaround story.
Graphic on fund positioning in LME and COMEX copper:
EVERYONE LOVES DR COPPER AGAIN
Copper has long been the hedge funds' favorite base metal to the point that somewhere in the mists of time someone awarded it an honorary doctorate for what it can supposedly say about the state of global manufacturing.
Five years of falling prices, however, saw "Dr Copper" fall out of favor.
All that changed in November last year, when the copper price broke up out of its previous trading range in spectacular style.
Fund money poured into the market, feeding on and accelerating the upwards momentum.
Net fund long positioning on the LME and the COMEX contract in the United States rocketed to previously unknown heights.
And although some of that froth has been blown off over the last couple of weeks, net money manager positioning at 70,547 contracts on COMEX and 68,938 contracts on the LME is still at unprecedented levels.
Taking the COMEX contract as an example because the U.S. Commitments of Traders Report (COTR) has a much longer history, the previous high for net fund commitment on the long side was 48,994 contracts, a peak seen in July 2014.
Particularly telling, moreover, is a comparison with 2009, a year of dramatic bust to boom. Funds bought into copper's rally from a December 2008 low of $2,817 to a December 2009 high of $7,167 but the collective net long peaked just shy of 30,000 contracts.
The inference is that the amount of money available for investment in the copper market has increased exponentially over the same period.
Judging by the greater volatility of positioning in recent years, that money has become a lot more active in terms of switching between long and short positioning as well.
The more statistically curious might want to draw a comparison in the graphic above between the COMEX and LME positioning reports.
The two use the same methodology. Indeed, the LME based its own Commitments of Traders Report, launched in July 2014, on the U.S. template.
But the LME report seems to be weighted toward the long side given how infrequently net positioning has fallen into short territory.
Graphic on fund positioning on LME aluminum, lead, nickel and zinc, rebased to Jan 2016:
ZINC STILL THE FAVORITE
That should serve as a caveat when considering fund positioning in the other base metals because the LME's report is all we have.
The CME, owner of the COMEX franchise, now offers aluminum, zinc and lead contracts but participation remains extremely low relative to the LME and too low for most investment funds to risk involvement.
Even with the peculiarities of the LME's version of the COTR, however, fund positioning on LME aluminum, lead and zinc turned net short at some stage over the first quarter of 2016, with that on lead following suit in May.
Since when the money flow has been all one way.
Taking that January 2016 trough in the LME price index as a reference point, fund net long positioning has more than doubled in the case of lead and nickel, tripled in the case of aluminum and increased five-fold for zinc.
Zinc's preferred status should come as no surprise.
While the bounce-back in Chinese demand has lifted all metallic ships, zinc has risen most because of its compelling narrative of a tightening raw materials supply-chain.
Zinc was the outperformer among the LME base metals last year and there is still plenty of money betting there is more to come this year as well.
At a current 81,874 contracts, the net managed-money long is holding close to its recent highs.
It has been exceeded substantially only once, in the second quarter of 2015, when fund money flooded the market, also chasing the story of supply deficit but, with the benefit of hindsight, prematurely.
That suggests that there is scope for even heavier fund commitment given the right combination of fundamental news and technical chart signals.
EVERYONE'S A WINNER?
The build-out of net long positioning by funds in metals such as aluminum and nickel looks more curious given both markets are still characterized by high stocks and evidence of overproduction.
True, net long positioning in aluminum has dipped quite sharply since a November peak of 178,131 contracts to a current 139,319 contracts, but it is still high by historic standards, which means since the data series began in July 2014.
Fund positioning on nickel, meanwhile, is still close to its all-time high of 66,062 contracts recorded in October last year.
Given that the nickel price actually fell through the 2009 lows in the early part of 2016 and has since staged only a half-hearted recovery, fund positioning suggests the money men are keeping faith with the overall cyclical turnaround theme.
Even lead has been a beneficiary of investment money, albeit to a lesser degree than the other LME-traded metals.
Fund participation is relatively low in this particular market and, curiously, the net long has moved out of synch with the actual price action over the last six months or so.
But net long the money men still are, at least according to the LME COTR data, and that despite a fairly brutal sell-off in December, from which the price has only partly recovered.
Which, in its own small way, says a lot about how the funds feel about base metals right now.
(The opinions expressed here are those of the author, a columnist for Reuters.)
(Editing by Dale Hudson)