Metals looking good despite a pull-back on the close

The base metals put in a strong performance on Tuesday although by the close some of the early strength had subsided. Although still the laggard in the base metals camp we were encouraged by copper’s rally, which saw price rise from opening levels around $6960/t to highs at $7,229/t. Two points are of particular interest. Firstly on the charts copper had started to look increasingly vulnerable, but despite this, prices failed to break lower and ended up rallying, and secondly, on Tuesday prices stalled at the same level as the late November’s rebound did, which provides the market with a line in the sand and a target. The fact that prices failed to break lower suggests a certain amount of underlying buying and then Tuesday’s rebound also suggests buyers, or shortÄcovers, were prepared to chase the market higher too. At least this is a sign of some strength returning to copper, even if it still ran into overhead supply above $7,225/t.

Indeed any move now back above $7,225/t would suggest that prices are attempting to tackle the wide and heavy band of overhead supply that runs between $7,200/t and $7,800/t. You could argue that the very fact that prices are even attempting to do so is a sign of strength. Indeed the fact that prices only pulled back to $7,175/80 is another relatively bullish sign.

We have not given up on our bullish outlook for copper and feel that there is potential for considerable pentÄup demand, especially from China, but if China enters the arena as a buyer of copper, copper concs and copper semis, then Europe and other parts of Asia may well have to restock too. The landings in the US may well signal a slowdown there, but given the overall supply / demand balance and the level of destocking in recent months, any excess material from the US may well soon be needed in either Europe or Asia.

Shanghai copper opened around Rmb 65,800, drifted towards Rmb 65,400 for most of the day, before climbing into the close and was last at Rmb 65,530. On Select, copper fell to $7,100, but has started to edge higher ahead of the London opening,last $7,120. Although volumes look very light.