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The potential for further short-term dislocations in refined supply as a result of these factors. Lower global IP levels are contributing to the tightness in scrap, though low prices have also been a major factor, so ..

18 May 2013

LONDON (Commodity Online): There is further upside to the recent short covering in copper given positive demand signals from China and market positioning that is still short. And prices above $7,500/t is an opportunity to short copper, said Barclays in a report.

Despite subdued macro news and data flow, micro copper related data signals from China remain positive, with the import arb still open, physical premiums high, SHFE time spreads in backwardation, bonded and SHFE stocks falling and end-demand indicators expanding.

This should lend support to prices in the short term, though Chinese buying could start to run out of steam in July/August.

Despite strong growth in copper mine supply, refined supply has been lagging due to smelter disruptions and tight scrap supply.

Chinese smelters, which have become more reliant on scrap, recently announced up to 50Kt of production cuts as a result of scrap tightness.

The potential for further short-term dislocations in refined supply as a result of these factors. Lower global IP levels are contributing to the tightness in scrap, though low prices have also been a major factor, so even a brief period of price strength should help to ease some of the tightness.

“We have reduced the disruption allowance in our 2013 supply-demand balance by 0.5% to account for the loss from the Bingham Canyon landslide and the potential for lower disruption this year,” the bank noted.

“We would caution, however, that although copper supply is expected to be strong this year, the market is in danger of being complacent on this topic. Tighter scrap supply may to some extent offset strength in mine supply and lend support to prices, in our view,” Barclays concluded.


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