Commodities | May 24 2012
Copper has come under tremendous pressure from the recent fallout in Greece and the continual slowdown in China. As we have mentioned several times before we feel that China is the key to the copper price. As a result of the G8 meeting last weekend we have seen prices generally firm.
The main reason behind this is the fact that Premier Wen has mentioned that Beijing will support efforts to promote growth in the global economy. By reiterating this stance the government has also committed to new infrastructure projects. This means we could have heightened demand for primary inputs such as copper and hence this would help to under pin any weakness should it prevail.
In order for this to be a success the world has to believe the command economy is true to its word and genuine in its needs. It is interesting to note that Beijing will be forced into action regardless as China's internal economy is faltering, hence the central committee will need to add stimulus. Likewise the external economy has been faltering for sometime so either way Beijing needs to act here and timing of the action should be sooner rather than later.
Just a quick recap of China's position as the largest consumer of copper; manufacturing data was at its lowest level since May 2009, industrial production growth was down to 9.3% from 11.9% in March; fixed asset prices grew at their weakest rate all year, investment real estate dropped 5% for the quarter and electrical consumption growth was only 1%. All these facts do not represent a bull market for copper. As a result we expect the dovish monetary and fiscal policies to be stepped up.
At the moment the market will be focused on Greece, however. With China's decision to stimulate global growth we feel the G8 is trying to isolate itself from any fallout. As such, once we get this EU Ministers meeting out of the way, backed up with appropriately worded statements, then expect copper's fall to consolidate.
Chart Point
We have to be cautious as the technical picture for copper does not look that good. We continue to trade around the lows and have not yet had a buy signal. We remain neutral to bearish in the short term.
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