In coming weeks there will likely be more rallies tied to USD weakness, but the technicals are likely to see copper fall back on softer demand issues. The net long, or bullish positions held by non-commercial investors in the US copper futures market rose 27% to 9,581 lots in the week to April 1, compared with 7,555 contracts a week earlier. I suspect they will be unloaded this week. The price of copper is up more than 30% this year.
There are traders suggesting that strong demand from world No. 1 consumer China will outweigh any slackening in consumption caused by a recession in the USA, but this market talk neglects the significant part US consumption plays in Chinese demand. It will take time for US sluggishness to feed through to Chinese demand.
LME inventories rose 1,000 tonnes to 116,150 tonnes - their first weekly rise since mid-February, though stocks still remain tight at just 2 days of global consumption. Citigroup regards copper as the most positive of the base metals. It has lifted its 2008 price forecast by 14.7% to $3.556/lb ($7,840/tonne) and $3.50/lb for 2009 ($7,716/t). Citigroup said prices in 2007 were supported by 800,000 tonnes of production losses compared to expectations. As a result of these supply shortages, there is likely to be a market balance in 2008. In the long run there is every chance that we will see $10,000/tonne copper, but it will not be until emerging market demand recovers.
Andrew Sheldon www.sheldonthinks.com