Copper Approaching $3/lb

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The copper price has been under pressure like all commodities as investors have sold positions either in the belief that slowing western economies are going to dampen demand or to raise cash needed for margin calls elsewhere according to Reuters. Whatever the motivation, the fact is prices are heading towards the sensitive $3/lb, previously a support level, on the  New York Mercantile Exchange’s Comex.  In addition,  the LME price is now below the Shanghai Futures exchange price for the first time this year illustrating the lack of optimism investors hold in Europe. All this is good news for consumers and should initiate a review of contract pricing.

Where is the bottom going to be for copper? There is no doubt demand has dropped over the last year in North America and Europe, and that demand growth has slowed in the BRIC countries of Brazil, Russia, India and China. But infrastructure projects are long term and all these countries have a huge backlog of investment which will have to be maintained if industrial growth is to continue. The largest consumer of copper in these markets is power production. India and China have dire power supply issues that will only be rectified with ongoing power station and distribution investments.

However not all analysts are expecting BRIC demand to cause a reversal in copper’s fortunes anytime soon. Opinions are mixed but our call is global demand overall is going to continue to fall and investors credit is going to become harder to come by, consequently prices are at best going to plateau and may have further to fall. Watch that $3/lb support level, it will tell us a lot about the market’s faith in current copper prices.

–Stuart Burns

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