Base metals have been weakening in recent trading and yesterday's revision by S&P to the outlook on the US' AAA long-term sovereign credit rating from stable to negative, weighed further on the base metals complex. The bellwether of the complex, three-month copper , has edged below multi-month trendline support at the US$9,300/tonne area to trade at US$9,249/tonne at one point today. We highlight that a weekly close below this level could see a move back to the US$9,000/tonne level. In the event of such a move, the US$9,000/tonne level should provide significant support, particularly given that the copper market is forecast to remain in deficit this year as supply growth fails to keep up with demand. That said, some headwinds may serve to dampen the metal's performance over the coming months. Continued monetary tightening in China could weigh on Chinese demand going forward, while a sustained period of high energy prices could weaken expectations for global growth and thus weigh on industrial metals. Furthermore, with QE2 likely to end in June, this could weigh on risky assets across the board. As such, while we remain constructive, there are several risks to note.
