BNamericas reported that copper prices are trading almost USD 1,000 per tonne below where they might be were it not for the sovereign debt crisis in the Eurozone. Barclays Capital said that there is no doubt that market sentiment in commodities has become extremely negative and whilst 2008 style financial crash is not yet being priced in, a substantial worsening in the commodity trading environment clearly is. A key reason for the decline is the establishment of speculative short positions which have risen 30% over the past 6 weeks to more than 800,000 lots, their largest since July 2010. The Bank said that in addition to tactical liquidation and shorting of commodities there has been a considerable amount of liquidation in commodity index and ETP markets recently. In September, total withdrawals hit almost USD 10 billion the highest monthly outflow since our monthly data series began in January 2009 and more than the net withdrawal for all of Q4 2008. Relative to the size of assets under management industrial metals markets' assets have been hardest hit which said that selling of copper has caused its undervaluation relative to fundamentals to move above the two standard deviation level. In effect, our copper model, which estimates fair value based on inventory trends, Chinese imports, global IP, leading economic indicators and exchange rates shows that copper prices are trading almost USD 1,000 per tonne below where they might be were it not for the sovereign debt crisis. Fundamentals are far more important as price drivers than financial flows, according to the report. However, the negative sentiment long liquidation and short selling of commodities have pushed the price of many considerably below the levels that are justified by current fundamentals. Any brightening of the macroeconomic scenario is likely to lead to a strong rebound across the sector but some commodities are likely to benefit more than others. In base metals we expect copper prices to lead the upside move.

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