Bullish copper may run out of steam

[miningmx.com] — COPPER hit a record high on Wednesday, nudging the key psychological level of $10,000 a tonne on brightening prospects for global economic growth and limited supplies.

The price of the metal, used in construction, looks set to remain robust, with a widening deficit and constrained supply at odds with resilient growth in top consumer China and solid economic data in the United States, the world’s largest economy.

The average of 23 forecasts showed the copper market would have a deficit of 444,000 tonnes this year, compared with the 180,000 tonnes seen in a July survey.

BUY

“This is an investment darling,” said Danske analyst Arne Lohmann Rasmussen. “With a cheap dollar and strong data, and if people are looking for a bit of risk, then copper is an obvious choice.”

Copper has already risen more than 60% since last June as growth in China, which accounts for around 40% of the world’s copper use, started to pick up.

But at the same time output has consistently fallen short of expectations due to natural disasters – such as earthquakes and floods – or falling ore grades, strikes and project delays.

The euro retreated from a two-and-a-half month high against the dollar on Wednesday, but the US unit remained weak. A weaker dollar makes metals cheaper for holders of other currencies.

Data, including higher than expected jobs data in the United States, have all pointed to improving economic prospects.

“Copper has been and definitely remains a buy for now,” said Kamil Wlazly, a metals analyst at Metal Bulletin Research.

“The fundamental drivers remain firm with the weaker dollar, strong equities and signs of strong recovery from from United States.”

These factors, he added, would continue to feed renewed risk appetite and stimulate more portfolio buying into February.

SELL

“I’d be a seller,” said Charles Kernot of Evolution Securities. “I’m a little bit more conservative in terms of the copper price outlook than a lot of my competitors are across the commodity spectrum.”

Kernot said although demand was strong, he was concerned that Chinese buyers would baulk at the record prices.

“I’m worried that there’s just a little too much bullishness behind the price rise, which actually when it comes down to it may not have much follow through,” he said.

Will it hit $10,000?

“With the momentum behind it, it may,” Kernot said, “but sometimes with these targets, which are clearly artificial, (the trouble) is that perhaps you push it and when you get there you say right – we’ve made it, so now what? A little bit of reality creeps back into the picture.”

VULNERABLE

“I am buyer in the short term. But there are too many risks to go long now. In the medium term, by the end of the year, it could go down,” Global-Cap SA fund manager Alexis Dawance said.

And if you’re looking for warning signs, there are the climbing inventories and not particularly attractive arbitrage to ship into China, said Sean Corrigan, chief investment strategist at Diapason Commodities management.

Copper stocks at LME warehouses were at 393,775 tonnes on Tuesday, compared with levels under 350,000 registered in September.

“There are vulnerabilities there clearly, the market is very long and bulled up but can we yet call a top? That’s slightly more problematical,” Corrigan said.

“If you were sceptical at this stage you still have to wait for the market to reverse before you can take positions with it.”