Short-Term Outlook
Three-month copper has continued to sell off since peaking in February, to trade at a level of US$9,009/tonne at the time of writing. From a technical perspective, we believe that there is room for additional downside to the US$8,200-8,500/tonne level. However, there is substantial support around this area, with multi-year trendline support and the 200-day moving average. As such, any move towards support around the US$8,200/tonne area could provide a good entry point for long investors from a risk reward perspective, particularly given that copper inventories are starting to decline, reflecting the tightness in the market. That said, any move below trendline support would force us to reassess this view.
Core View Provided that copper prices respect multi-year trendline support around US$8,200/tonne, the outlook will remain bullish and we highlight upside risks to our annual average forecast of US$9,500/tonne in 2011 and US$10,000/tonne in 2012. Thus far three-month copper has averaged U$9,510/tonne in the year to date, and any strong rally in prices from current levels would pose upside risks to our forecasts. Indeed, despite recent tightening measures in China and the likely end of QE2 by the US Fed, we believe that the fundamental backdrop remains bullish copper. As we have argued for some time, the global copper market will be in deficit this year and next, which will be price supportive. Moreover, while inventories at the exchanges around the world have risen since the start of the year, in recent weeks, they have started to decline, which is in line with seasonal patterns (albeit slightly delayed) and will underpin prices if the declining trend persists. Relative to the market, our price forecasts remain below consensus estimates collected by Bloomberg, which show an average price of US$10,330/tonne for 2011 and US$10,120/tonne for 2012.
Global Deficit To Underpin Uptrend In Prices ...
