Commodities | Nov 24 2011
By Jonathan Barratt
The copper market remains fixated on the issues in Europe and the US over the sovereign debt concerns however, further a field in China, copper imports remains robust. It is interesting to see this even after the surprise announcement that China had inventory levels of close to 1.3 million tonnes. China remains the number one consumer of copper in the world and this month’s imports are showing us a completely different picture.
In the wake of what many see as an economy slowing down China’s October trade data provided a completely different picture for the metal. Copper imports rose for the fifth straight month reflecting an economy that continues to import more and more copper. China imports of copper rose to 383,507 tonnes which is up 40.2% from a year earlier. The pace of China’s economy is dictated by two main drivers; the external demand for fabricated goods and the internal demand for infrastructure and construction. We are fully aware of the concerns in Europe and now the US and this will ultimately affect the demand for the metal going forward so far the market is pricing in a soft option for demand. In China, the internal demand picture is mixed, on the one hand we have a surplus of the metal, and then on the other hand imports are strong. In addition to this we have suspected that China has been destocking or in fact just consuming, however the pace now appears to be quiet frantic.
Exchange inventories at the Shanghai Futures Exchange have hit a four month low at the end of October and copper stocks in a bonded warehouse in Shanghai have come in to about 200,000 tonnes which are said to be “normal”. The strong premiums paid for copper for both Shanghai bonded metals and imports are indicative of the demand for the metal for the region. We have suggested in previous Bulletins that the main reason for demand has to do with the increased level of infrastructure projects currently under way. The main infrastructure program is the upgrading of the national power grid, which over five years will cost $390.63 billion and will result in significant ongoing demand for the red metal as we head into 2012.
Although this suggests a bullish outlook for the metal into 2012 we have to deal with the current fundamental picture. There are still stiff head winds from Europe and the US which will dampen this bullish optimism.
Keep an eye on US300.
Chart point:
The market continues to consolidate and as suggested from last week we have a negative bias. At the moment we focus towards US320 as a key level of support. Momentum indicators remain weak and we still see lower end support coming in at US315. We expect to see more consolidation within the trend lines outlined below.
Produced by Jonathan Barratt direct from the trading desks of Commodity Broking Services, Barratt's Bulletin provides expert analysis of commodity markets, global indices and foreign exchange movements. Click here to take a no obligation 21-day trial to Barratt's or to learn more visit www.barrattsbulletin.com. Content included in this article is not by association necessarily the view of FNArena (see our disclaimer).
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