Keeping an Eye on China and Its Copper Appetite
Copper along with nickel, lead and zinc have all fallen lately. But copper prices are still up 3.8% on the year, while others are down more than 20%. And copper remains closest to its record high.
Not surprisingly, copper's fate may rest with China. China's copper imports have been down this year, as prices on the Shanghai Futures Exchange have been cheaper than on the London Metal Exchange.
But in one bullish sign, Shanghai prices have recently shifted to a small premium over LME, according to Morgan Stanley. This is a sign that "China is rebuilding stocks as that may herald a copper bottom," wrote John Reade with UBS Commodity Strategy.
Bulls these days also point to rising "canceled warrants" from London Metal Exchange warehouses. Copper firms hold warrants when metal is stored and cancel them in anticipation of delivery, so a rise in canceled warrants is an indicator of expectations of growing demand.
Bears note speculators' net short position has grown to a 15-month high at the Comex division of the New York Mercantile Exchange, according to Capitol Commodity Services. Despite the rise in canceled warrants, copper inventories held at LME warehouses have mounted since April.
Some clarity may come in a few days when China releases August trade data. Stronger copper imports would confirm that China buyers are responding to the price moves.
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Posted - 09/09/2008 : 09:17:09
