Copper prices have been boosted by an improved outlook for Chinese demand, lower global exchange inventories, expectations that central banks around the world will keep the financial system liquid and ideas that the supply/demand fundamentals are tighter, with restocking expected. 

 

“While it is true that demand driven by China and a recovering U.S. will grow and that primary supply/demand fundamentals will tighten alongside a drop in inventories, our estimates show that these are unlikely to improve so much as to move copper prices above $7,000 (per metric ton) on a sustained basis,” said analysts with TDS. 

 

The fact that TDS is entering a slow seasonal period is one of the first factors that support the hypothesis that copper prices may see somewhat disappointing times in the new quarter. Demand typically declines in Q3, with prices also underperforming. 

 

In addition, the primary market is likely to move into a surplus in the next three months, with the expectation that it will grow next year.

 

TDS also said while London Metal Exchange and Shanghai Futures Exchange inventories have fallen in the last year, holdings in Chinese bonded warehouses are estimated to have increased. 

 

“It would seem that the exchange inventories did not all go into manufactured goods but into another inventory area. This implies that metal is available and the market is not as tight as suggested by the drop in exchange inventories,” TDS added.