Morning Futures Roundup

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Are Copper Prices Beginning to Tarnish?


   Fundamentals

It has been a difficult few weeks for the base metals sector, as continued uncertainty over a definitive plan to deal with the European debt crisis and signs that the Chinese economy is indeed slowing appears to have put traders in a selling mood. The declines are widespread, with Aluminum prices down over $400 per ton, Nickel prices tumbling over $6,000 per ton and Copper down $1.35 per pound since the beginning of August.
The sell-off in the base metals complex corresponds to a commodity-wide price decline, as many traders appear to have moved towards a more risk averse mentality until we start to see some signs of an improving economic environment. It appears that some traders are ignoring some of the fundamentals that would normally be supportive of Copper prices.

For example, the International Copper Study group is calling for a global Copper deficit of 250,000 tons in 2012, which is up from the 200,000 deficit expected in 2011. There are also some supply issues for Copper in both Chile and Indonesia, as labor disputes have curtailed production at some of the country's mines. China, who is the 800-pound gorilla in the physical commodity sector, has yet to see end-users buying physical Copper, despite the lowest price levels of the year. Could this be a sign that commercial buyers believe that the country's economic growth levels will continue to decline, as the government's attempts to tighten financial lending may lead to further weakening demand for Copper, and therefore lead to even lower prices as we move into 2012? That may ultimately be on traders' minds as they continue to sell Copper.


   Technical Notes

Looking at the daily chart for December Copper, we notice that the "V" bottom has been negated by Thursday's sell-off. Prices have now once again fallen below the 20-day moving average, and momentum, as measured by the 14-day RSI, has turned weak, with a current reading of 32.63. The yearly low of 2.9940 needs to hold, or we could see a test of the major lows made back in 2010 near the 2.7300 area. Resistance for December Copper is seen at the October 17th high of 3.4635.


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