Copper $1/lb Likely?
Source: MetalMiner, Lisa Reisman (2/11/10)
"We're going to see a catastrophe in the market."
According to the article, 90% of copper buying has come from speculators. Threlkeld explains as follows, "Whether they are ETF speculators or China pig farmer speculators it doesn't really matter, because that buying is going to come back to the market," Threlkeld also points to interest rates—specifically that the $1/lb forecast "may be driven by higher interest rates in China or the U.S." Last, the $1/lb scenario Threlkeld looks at the inverse relationship between supply increasing and demand decreasing, "What we have now is. . .a unique situation, whereby we have a surplus and production has gone up and consumption has gone down."
For sure, stocks have increased but we'd suggest that they have not reached historically high levels. China accounts for a large portion of overall copper demand (over 35% of global copper demand). We also think China stimulus programs around the power grid and rail projects will continue to support demand. True ETF and speculative activity could cause investors to dump shares/holdings if prices did collapse, perhaps further exacerbating a drop in copper prices.