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From a fundamental perspective, stock trends have been turning more positive. LME stocks have levelled out, SHFE and Chinese bonded stocks are falling. Other indicators of Chinese demand are also positive, physical pr..

11 May 2013

LONDON (Commodity Online): Copper prices may witness further upward movement as market positioning is still short with positive demand signals from China. The base metal prices may rise above $7,500 per ton before re-stabilising shorts, stated London based Barclays in its recent market report.

Last week, across the base metals complex, short-covering dominated price dynamics. In the context of extreme CTA short positioning, a stronger-than-expected US employment report alongside a surge in German factory orders for March combined to act as catalysts to fuel the move in prices.

From a fundamental perspective, stock trends have been turning more positive. LME stocks have levelled out, SHFE and Chinese bonded stocks are falling.

Other indicators of Chinese demand are also positive, physical premiums are high, SHFE time spreads are in backwardation, the import arb is still open and data on end-use activity in some sectors have continued to improve.

Interestingly, this rally has mainly been in copper, and to a lesser extent aluminium, reflecting the size of short positioning in those markets and also the more encouraging fundamental signals in the case of copper.

On the copper mine supply side, there were several developments of note over the past week.

--First, Rio Tinto stated that it expects final approvals from the Mongolian government to start shipments from its Oyu Tolgoi copper mine in the next few weeks. This follows protracted negotiations between the two parties that had raised concerns about the project time line. The mine is expected to produce 70Kt this year before ramping up to close to 200Kt by 2015.

--The Collahuasi mine’s production in Chile is expected to recover this year to potentially as high as 400Kt as mine worker announced their negotiations.

--Finally, Barrick Gold and Antofagasta announced they have given up on their Reko Diq copper-gold project in Pakistan.


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