I recently opined on the long-term bullish fundamentals of the copper market (Mercenary Musing, May 28, 2012). Despite a promise to follow up immediately with a short-term commentary, a 24-day sojourn back and forth across North America forced a delay. However, I had time to decipher equivocal market signals and recent supply and demand trends. Four weeks after the fact, I present my views on the short-term fundamentals of Dr. Copper.
The chart below displays copper’s strength over the past year. After a long overdue 30% correction of the unsustainable +$4.00 price in late August to early October 2011, it settled into what I viewed as a very comfortable range of $3.50-$4.00/lb. With May’s economic concerns about European debt and the slowing of Chinese growth, copper’s price dropped into a lower range of $3.30-$3.50/lb for the past six weeks:
Chinese imports have been robust this entire year and copper’s continuing strength is reflected by LME warehouse stocks, which in late May dropped to their lowest levels since late 2008 and remain quite low:
Low surplus inventories are also shown by a two and a half-year low in Comex stocks and a 40% reduction in Shanghai warehouses since a nine and a half year-high was reached on March 15. The three official global stockpiles of surplus copper now total 446,000 tonnes, equivalent to less than eight days of world consumption.