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Copper Dips – Should the Red Metal Look in the Mirror?

By Jim Williams

The price of copper took a hit on Tuesday despite new numbers out of China showing continued strong demand. One analyst says it may not completely be China’s fault.

Copper dipped to $2.14 per pound ($4,718 a ton) yesterday after a custom data report out of China showed the country’s imports of unwrought copper and copper products were 360,000 tons in July. That’s down 14.3 percent from June, but slightly better than July of last year.

“;You’ll have to wait a few more weeks, or maybe one or two months, until the seasonally low demand from China is over and demand picks up,”; Daniel Briesemann at Commerzbank in Frankfurt told CNBC after the release of the import data. “;I’m convinced that the copper market is tighter than many other copper market participants believe. I’m still comfortable with my price target of $5,200 for end of the year.”;

One of the world’s biggest investment firms is not so optimistic. Goldman Sachs came out with a bearish forecast on Friday, predicting double digit declines for copper to a low of $1.80 per pound 12 months from now as an onslaught of supply hits the market from Chile, Peru and Zambia.

“For metals such as copper and aluminum, there is more downside coming because supply still exceeds demand,” Robin Bhar, an analyst at Societe Generale SA in London told Bloomberg Markets. “China still seems to be slowing. Copper is the most exposed to a slowing Chinese economy because of its greater use in infrastructure, construction, property market and so on.”

Should we be concerned about the state of Copper more than the state of China?

“If all metal prices were as lethargic, it would make sense to blame the economic conditions in China for industrial malaise,” states frequent tED contributor Andrew Hecht, of Seeking Alpha. “However, gains of 20% and higher in zinc, nickel, tin and iron ore point to problems inherent in the copper market itself.

“All signs point to oversupply in the copper market as the reason for its lethargic price behavior, and the likely reason is that an over-exuberant China loaded up over recent years, and production has not slowed to a level where inventories declines have been significant enough to lift prices, yet. One of the problems that copper now faces is that if commodity prices decide to correct lower, copper could lead or at least follow. The metal with weak fundamentals that did not participate in a sector-wide rally could turn out to be the leader during a period of downside correction.”

You can read Andrew’s Seeking Alpha article,”Doctor Copper Looks Sick” here.


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