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View of the Day: Copper prices set for a fall
By Kevin Norrish
Published: January 15 2009

The robust performance of copper prices in early 2009 is mainly the result of market positioning, and with fundamental indicators very soft, prices look poised for further losses in the short term, says Kevin Norrish, director, commodities research at Barclays Capital.

“Hedge funds entered the year carrying very large short positions, and with commodity index rebalancing requiring a large amount of Comex copper to be bought in early January, precautionary covering appears to have been the dominant factor in pushing copper prices higher.”

However, Barclays warns copper prices face the risk of a significant fall as temporary supports, such as short covering and index rebalancing, ends.

“Current fundamentals certainly suggest a market that is getting markedly weaker. Recent economic data releases have come in worse than expected and copper inventory levels are rising sharply.

“Indeed, the rate of inventory accumulation has accelerated so far this year, with total exchange stocks up more than 50,000 tonnes since the start of the year, following on from a 68,000-tonne increase for the whole of December.

“What is also likely to weigh on copper is that the rally has pushed prices above marginal output costs once again, while most other LME metals prices are still trading a long way below that level,” says Mr Norrish, who suggests that at $3,320 a tonne, copper now looks a tempting short.
Copyright The Financial Times Limited 2009