Copper has further to fall
Jun 18, 2010
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The red metal slumped by almost a quarter between mid-April's peak of $8,000 a tonne and last week, before recovering to $6,600. The bounce is likely to be short-lived.
One problem is the global macroeconomic outlook. A "prolonged period of fiscal restraint" is in the offing in Europe, which will reduce growth even further, says Capital Economics. The US recovery is also lacklustre and the leading indicators there continue to deteriorate. Then there's China, the biggest user of the metal. Demand will soften as the government keeps trying to rein in growth. There is still a long way to go: property prices rose by a near-record 12.4% last month.
Meanwhile, global stockpiles are "bulging", says Sumzero.com. Stockpiles are still close to a six-year high. Note too that China's apparent demand for copper is exaggerated by around 15%, as some is re-exported in finished goods, says Deutsche Bank. Given all this, investors can expect copper "to trend lower" for now, says John Meyer of Fairfax. Deutsche Bank reckons the price will average $6,000 in the third quarter, while Capital Economics thinks it could fall to $5,000 by the end of the year.
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