UNITED KINGDOM June 13 2014 LONDON (Scrap Register): Bank of America Merrill Lynch maintains an average second-quarter copper forecast of $6,500 a metric ton, suggesting some downside from current levels.
According to the Bank, issues surrounding Chinese copper stocks in Qingdao are unlikely to break the copper market. Much copper is held for financing deals, and worries about irregularities have causes some apprehension this month. Chinese authorities are reportedly investigating financial deals to see if some they were backed by copper that did not exist, the bank explains.
"This investigation has caused significant apprehension on concerns that most or all of the copper financed in China at present may flood the market, which could happen for instance in a scenario where banks/traders involved with these transactions withdrew from the business," said analysts at BofAML
But such extreme scenarios are not our base case, the BofAML continues, although adding that such scenarios could cause short-term distortions in the market.
"Put differently, the issues in Qingdao are certainly severe, but we note that the port is not a significant trading center for refined copper, so even if some of the financing deals were unwound, the tonnages affected directly are in all likelihood less than one day of Chinese demand," BofAML concluded.