In mid-May, I warily eyed copper as it looked ready to lead the correction in commodity prices into a complete breakdown (see “Silver Fails Resistance; All Eyes on Copper’s Support“). However, over the past six weeks, copper prices have held firm by clinging to the 200-day moving average (DMA) line of support.
This week in particular could prove significant as copper prices have rebounded strongly off BOTH the 50 and 200DMA support levels.
Supporting the prospects for future prices are two recent articles noting strong copper demand and declining supplies. In “Copper Supply Squeeze Coming, Prices to Jump: Analyst“, CNBC quotes Gavin Wendt, Senior Resources Analyst at MineLife (July 1, 2011):
“If we take a look at the Escondida mine in Chile, which is owned by BHP and Rio Tinto, they’re forecasting that production this year will decline by 10 percent as a result of declining grades…All of the world’s major mines are suffering this same problem.”
In “Copper Sector Set to Shine on Growing Demand“, TheStreet.com provides additional, critical data points:
“Goldman Sachs estimates a 4.7% growth in global copper demand but only a 2.1% growth in global copper production for 2011…
…A June research report from Macquarie estimates that China’s copper demand will grow at a clip of 6% and that the copper market is set to strengthen in the next two to three months…
…Copper inventories on the Shanghai Futures Exchange have dwindled more than 40% since mid-March and are nearing a two-year low”
An enduring supply shortage could send copper prices hurtling upward very rapidly, especially if fears recede over a potential slowdown in the global economy. Such conditions could launch another strong rally in copper prices.
Be careful out there!
Full disclosure: long FCX