With the fundamentals of copper not improving, and most of the 20-month high prices reflecting the interest of copper investors rather than copper demand, it could be that copper is ready for a correction as investors gravitate away from the metal to other sectors.
Based on data from the London Metal Exchange, the price of copper is too high when contrasted with the fall in demand for copper, as stockpiles reflect, with orders having dropped by 2.9 percent to 15,000 metric tons. That's the fourth week in a row demand has fallen while prices have held up. Bookings for copper have declined 56 percent since March 3.
Taking into account the higher prices and lower demand, concerns are copper prices have risen far too quickly to justify, and there should be a turnaround to counter that move.
Even so, there is always the China part of the equation when it comes to any commodity, and in 2010 China is expected to increase copper consumption by up to 14 percent this year. Being the largest user of copper in the world, that should offer some support to the metal, even if it has reached beyond what the market conditions reflect. In 2009 China consumed about 5.94 million tons of copper, which if there is an increase of 14 percent would bring it close to 6.80 million tons in 2010.
So even if we do have a short-term correction, prices of copper should rebound based on demand, and enjoy support through the rest of the year, assuming major unknown surprises don't present themselves.
The one concern in reference to China and copper is if their cutbacks in domestic programs and stimulus spending will be replaced by economic growth based on real demand. That will be answered in the months ahead.
The views expressed are the subjective opinion of the article's author and not of FinancialAdvisory.com
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