By Deepak Rangan
Copper prices have been on a bull run for the past 10 years, driven by robust demand from China whose resource hungry appetite has made it the world's largest consumer of copper- accounting for almost 40% of annual global consumption. The near term forecast, however,does not look too promising. Be it the Chinese demand or supply issues.
5 reasons to be bearish
China's falling property demand and prices
Infrastructure is one of the major users of copper and infrastructure in China has been, without an argument, one of the main drivers of the Chinese economy. What happens when the infrastructure sector starts to slow down? Obviously, it would mean lower copper consumption.
Property prices in 70 cities fell for the third straight month in December,making investors sit tight. The Chinese government will start only 7 million social homes 2012, compared to 10 million in 2011- which means 30% less copper demand from social building activities.
China's surging copper inventories
Chinese copper inventories are being reported to being quite high, especially during the latter part of 2011 when falling prices made the Chinese to take notice and restock. A Barclays report states that Q4, 2011 stocks rose to around 300,000 tonnes. And even though, the report does suggest that copper demand will remain unaffected through the year, some analysts argue that since prices have risen from the lows of previous months, Chinese traders may depend on their stocks to meet domestic demand and defer purchases.
China's monetary easing and copper financing
China's tight monetary policies had made accessing credit very tough for business, due to which many resorted to importing copper (through LoC's and other means) and using the same as collateral to secure finance. With the Chinese central bank indicating further monetary easing to boost the economy, this will make credit cheaper and much easily accessible to business thereby corrupting the prospects of copper financing and imports
Copper shortage turning to surplus
Huge demand for copper had created a shortage in physical markets. In fact, copper has been in shortage for every single year since 2005. But this will change in 2014, a Barclay's report states. The investment bank forecasts that copper will be in a surplus of 121,000 tonnes in 2014 from a 2012 shortage of 376,000 tonnes
Technical
LME Copper prices are currently trading between the critical $8000-$9000 zone – a very good resistance zone. The next resistance is around $10,000 level.
