Coming Copper Supply Crunch Supports Strong Prices - VM Group


"The drivers for continuing strength are. . .Chinese demand and strength, rapidity of OECD nations recovery"

The BNP Paribas Fortis/VM Group Metals Monthly for October has just been published giving the Group's analysts' views of the short and longer term outlook for precious and base metals and price forecasts.

The latest report takes a particularly close look at the copper sector and concludes, primarily, that copper prices have been supported by continuing strong import figures from China, the key driver of the markets since the bottom dropped out of the metals sector a year ago.

China likes to surprise, say the analysts, and with unwrought copper and copper products imports increasing month-on-month in September, against consensus forecasts of decline, the copper rally received a welcome boost. While they feel that OECD demand recovery is still crucial for the copper price to continue its march, at least Chinese demand will likely cap declines as long as the speculative element in Chinese consumption remains under control.

Metals price performance over the past month, though, has to an extent been dominated by the falling dollar. . .the analysts feel that there has been a recent shift in global perceptions towards the dollar. Now they feel that the dollar decline looks set to continue while the U.S. government's budget remains apparently in considerable turmoil and destined to get worse.

Even so they feel that a short-term reversal is still likely at some point and metals prices (especially gold and silver) should react negatively accordingly. Yesterday's gold price dip—and corresponding fall in other commodity prices suggests this may be currently in progress.

VM looks at copper price prospects for the remainder of the year as being uncertain, with a price correction being overdue. The drivers for continuing strength are the ups and downs in Chinese demand and the strength and rapidity of OECD nations recovery, if indeed it is really happening. "How these dynamics shape up in Q4 2009 will help determine whether or not copper ends this year with a bang, or a whimper." say the Group's analysts.

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