Commodities | Mar 22 2012
After last weeks bullish call the copper market continues to track sideways. It’s a little frustrating with our long position, as nothing special in terms of price action has occurred. The market has practically been stuck in a US10 range. Over the course of the week we have seen the market absorb a lot of negative news, from a decrease in building permits in the US, weakness in the housing sector in China and negative China growth stories from BHP and RIO. The metal continues to hold up well, which is surprising. We suspect that this has more to do with the tightness in supply we have been forecasting for some time.
Inventories on the LME continue to shrink; so far these have dropped by close to 30% this year. We do acknowledge that a lot of this shrinkage is as a result of an arbitrage opportunity that is seeing metal end up in Shanghai. However, the fact that it is ending up in China tells us another story that one day the tides will turn and China will have sufficient copper to feed its economic growth when the economy turns.
As we mentioned we continue to feel that a supply deficit will eventuate. Even though there is potential that the global economy will stall and thus increase supply. One fact that we feel the market has not looked at is that China continues to hold the trigger for an expansion if chosen and can just switch the liquidity on if it so chooses to do so. For every 0.5% reduction in the reserve ratio in China it equates to a $63 billion injection, which is unlike western economies where interest rates are at deaths door and will remain so for some time.
We continue to hold onto our long position.
Chart Point
The range looks to be a well-trodden path. Support is at US385 and resistance is at US395. We can identify a holding pattern, which usually breaks out to the topside, however momentum indictors are telling us that it is just not ready for the break out. Our bullish view will be compromised if US 370 is traded through on a daily basis.
.jpg)
This report is not, and should not be construed as, an offer to buy or sell, or as a solicitation of an offer to buy or sell, products, securities or investments. This report does not, and should not be construed as acting to, sponsor, advocate, endorse or promote products or any other products, securities or investments. This report does not purport to make any recommendations or provide any investment or other advice with respect to the purchase, sale or other disposition of products, securities or investments, including, without limitation, any advice to the effect that any related transaction is appropriate for any investment objective or financial situation of a prospective investor. A decision to invest in securities or investments should not be made in reliance on any of the statements in this report. Before making any investment decision, prospective investors should seek advice from their financial advisers, take into account their individual financial needs and circumstances and carefully consider the risks associated with such investment decision.
