LONDON (Reuters) - These are turbulent times for commodities as surging energy prices ripple down supply chains, not least metallic ones. But the copper market remains a quiet zone amidst the mayhem elsewhere, even if it is unlikely to remain so for much longer. The macro landscape is darkening, particularly in China, where the energy crunch is already having a tangible impact on the country’s manufacturing pulse. The trials and tribulations of Evergrande continue to cast a long shadow over the Chinese real estate sector, a powerhouse of metals demand over the last two decades. Throw in Europe’s power woes, potential tapering by the U.S. Federal Reserve, and a stronger dollar, and even some of copper’s most ardent supporters are warning of a downside reaction. However, copper’s micro dynamics are looking increasingly bullish, particularly when it comes to exchange inventories, which is keeping the bears at bay. This tension is keeping the copper price pinned into its summer trading range, with investors of all shapes and sizes staying clear for now. SHRINKING ACTIVITY London Metal Exchange (LME) three-month copper hit an all-time high of $10,747.50 per tonne in May, but has spent the summer months dawdling just above the $9,000 level. There have been a couple of lurches lower, most recently last week’s dip to $8,876.50 on news that China’s manufacturing growth stalled in September as the power crunch spread down the value-add metals chain. But as of Tuesday morning LME copper was back in its comfort zone, trading at $9,110 per tonne. The lack of directional momentum has seen investors depart for hotter markets, particularly in the raging energy complex. Market open interest on the CME copper contract has collapsed from 265,000 contracts at the time of the May price peak to 185,500, near the lows registered during the onset of the pandemic early last year. Average daily futures volumes in September, at 67,107 contracts, were down by 29% year-on-year and the lowest monthly total since May 2020. It’s not just the CME. LME copper volumes have been falling year-on-year for the last four months. September’s average daily tally was the lowest since October last year. The Shanghai Futures Exchange’s (ShFE) copper contract has been similarly deserted. Volumes have been sliding since June and September’s activity marked a new 2021 low, down by 30% year-on-year. Those funds that remain are of the black-box variety, with positioning gently gyrating in response to copper’s choppy sideways price action. Money managers are still net long of the CME copper contract, but bullish conviction has shrunk from 66,421 contracts in May to last week’s 29,629 contracts. In both London and Shanghai net speculative positioning is broadly neutral, according to LME broker Marex Spectron. And so it is likely to remain until copper breaks out of its holding pattern. MACRO PRESSURE That very lack of interest from the speculative community may help explain why copper hasn’t succumbed to any of the macro hits roiling other markets. Clear signs of slowdown in both China’s manufacturing and property sectors were already cause for concern before the country’s power crunch kicked in as an extra brake on activity. The accumulating pressures in what is still the world’s largest metals user have caused analysts at Citi to downgrade their short-term outlook. Citi is a self-declared super-cycle bull on copper and remains so, but “we are incrementally bearish on copper in the near term and we downgrade our price forecast to $8,200/t on a 0- to 3-month view (from $8,800/t), more than 10% below current prices.” (“Metals Weekly,” Sep 30, 2021) The problem for the growing number of similar short-term bears, however, is that copper is still a dangerous market to short. Time-spreads on all three exchanges remain characterised by backwardation, a potentially painful headache when it comes to rolling short positions. BULLISH MICRO OPTICS Underpinning this tightness is low inventory. That may seem a surprising statement given LME warehouses hold 212,125 tonnes of copper, more than double the volume at the start of the year. But over the space of two weeks some 84,000 tonnes have been cancelled in preparation for physical load-out. Cancelled tonnage now accounts for more than half of the headline figure. Live on-warrant stocks have shrunk to 100,250 tonnes, the lowest since May, which is why the benchmark cash-to-threes spread has been trading in persistent backwardation since the cancellations began, last valued at $7 per tonne. It’s possible the copper poised to leave the LME’s sheds will head to China, where Shanghai exchange stocks have slumped from a May high of 229,179 to 43,525 tonnes, the lowest level since 2009. The Yangshan premium - a closely watched indicator of potential copper import demand - has rocketed from June’s low of $15 per tonne to a current $114, according to Shanghai Metal Market. These are bullish optics for the copper market price, suggesting that China is about to recover its import appetite for refined metal. Imports boomed last year but have noticeably dropped a gear in 2021, the cumulative tally of 2.1 million tonnes over January-August down by 27% on last year. But the optics don’t tally well with the bigger picture, which is one of China losing its post-pandemic recovery momentum. Such is the copper price conundrum right now. Micro and macro signals are pointing in very different directions with the tension becoming ever more acute. Doctor Copper looks overdue a wake-up call from his summer snoozing. But until that happens investors will continue to seek their fortunes elsewhere.