Copper: Still Belle of Long-Term Ball

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"Macroeconomic data does not suggest a downturn. . ."

In 2009, China's portion of global copper consumption sat at about 35%. So, it is understandable that when it comes to determining where the price of the red metal is going, most eyes turn toward China. And, it is also understandable that concerns about a slowdown in China's economy tend to weigh heavily. But, despite the incipient slowdown in China's growth, it's important to note that demand is still growing, albeit at a lower rate.

In its latest edition of Commodity Watch, Goldman Sachs makes this point, writing that in the current environment, where there are seemingly conflicting messages of relatively robust microeconomic data and, more concerning, weaker and mixed macroeconomic data, it is important to focus on levels rather than growth.

"Absolute levels of demand moving back up against supply constraints are key to rebounding commodity prices, not sequential growth rates."

It adds, "It is important to emphasize that the macroeconomic data is not suggesting a downturn, but rather that we are now at the inflection point where the rate of change of growth is beginning to slow. . .But, all this means is that the level of activity and commodity demand will likely sequentially rise but at a slower rate.

But, while the imports have declined, they are coming off record highs, and the longer-term fundamentals seem to indicate the likelihood of tight supply down the line.

As Fitch says, in its most recent Base Metals outlook, "Longer term, continued consumption growth in China and recovery in the industrialized nations, coupled with limited new supply, could result in a return of deficits and price rationing."

As a result of this, the ratings agency maintains that prices are expected to remain above the marginal cost estimated at $1.60/lb.

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