Copper Questions 

Fundamentals

Copper has performed poorly lately, at a time when other commodities have hit multi-year highs. Traders are now faced with a dilemma after prices have pulled back ñ will supply or demand drive the market in the near term?

On one hand, Chinese demand has slowed considerably, and Japan's economy is at a standstill as the nation recovers from the natural disasters. New home construction in the US is virtually non-existent. All of these factors point to soft demand for the foreseeable future. While the demand side of the equation seems to favor the bear camp, supplies continue to tighten.

Copper miners have had their hands full keeping pace with demand. Heavy rains and human error has led to a reduction in Copper production in Chile. Mines fell well behind their first quarter targets, but if they are able to get back to normal operation, demand side fundamentals could win out. If prices do pull back to a large degree, we could see Chinese firms stockpiling once again. On the other hand, a slow descent could result in firms waiting things out.


 Technical Notes

The May Copper chart shows prices trading right at the 4.25 support level. Prices are also hovering near the 100-day moving average. A significant breakdown below the 4.25 mark could send prices lower and possibly test the 4.00 mark. The 4.00 level is a critical support level, both technically and psychologically for the Copper market. This was a level that the market had historically tested, but was unable to break through until late last year.  Click image to enlarge.


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About Mike Zarembski