MARKET COMMENTARY
After falling 21% in 2011, copper prices have risen nearly 13% ytd as fears about Europe ease and stabilization in Chinese manufacturing brighten the outlook. While equities have rallied 19% to start the year, expectations for lower prices in 2012 remain the consensus as global GDP growth slows and mine supply rises.
Last month some investors downgraded their demand and price forecasts and reiterated their view that the risks for both remained to the downside, at least in the short to medium term. The strong rally in prices during January has created a much more bullish perception of the market – prices have shot up 19% from the lows around $7,200/tonne in mid-December to $8,600/tonne in late January and early February. However, in our view, this strength is not built on the fundamentals, which makes the gains vulnerable. This doesn’t mean to say that prices won’t rally further – they may if central banks keep the liquidity taps open – but it does mean that prices have become disconnected from the physical fundamentals again. It is reminiscent of the situation a year ago, when QE2 drove copper to well over $10,000/tonne, despite a very troublesome macro and fiscal backdrop. Admittedly, the US is better shape now, but it is still vulnerable to contagion from Europe, where the crisis has merely gone from bad to worse. On the China front, although apparent consumption looks strong, real consumption is certainly not, and there are plenty of reasons to retain a cautious outlook for 2012.
For this week it was with very careful steps that the participants entered the market on Monday morning following Sunday’s late agreement where the Greek Parliament approved the country’s new loan agreement with the Troika. Out of 300 lawmakers, 199 voted ‘Yes’, while 74 voted ‘No’ and five voted ‘Present’.
This morning London copper was almost unchanged after slipped by nearly 4 percent from 5-month peaks of $8,765 a tonne reached last week, as investors took a cautious stance over Greece's approval of harsh austerity measures and traders noted scant buying from top consumer China. Three-month copper on the London Metal Exchange traded at $8,403 a tonne by 0757 GMT, down 0.26 percent from Monday's close, and retreating from modest gains early in the session.
Sharemarkets and the euro were showing some signs of risk aversion on scepticism that Greece's harsh austerity measures will be implemented and after ratings agency Moody's downgraded several smaller European nations and placed others like France and Britain on watch.
But the impact on metals was cushioned by copper's recent price decline, said Nick Trevethan, senior commodities strategist at Australia and New Zealand Bank. "You’ve seen a decent fall in prices in the last few days," he said. "It’s getting a little more attractive for Chinese purchases, although it’s still bit high for them to leap in with both feet." China is the world's biggest copper consumer, accounting for around 40 percent of refined demand.
Greece has admitted it still faces a tough job in persuading the European Union and IMF to save it from bankruptcy even after parliament approved savage extra budget cuts, provoking a night of looting and burning in central Athens.
Also tempering risk appetite, rating agency Moody's warned on Monday it may cut the triple-A ratings of France, the United Kingdom and Austria while it downgraded the ratings of Italy, Portugal, Spain, Slovakia, Slovenia and Malta.
After falling 21% in 2011, copper prices have risen nearly 13% ytd as fears about Europe ease and stabilization in Chinese manufacturing brighten the outlook. While equities have rallied 19% to start the year, expectations for lower prices in 2012 remain the consensus as global GDP growth slows and mine supply rises.
Last month some investors downgraded their demand and price forecasts and reiterated their view that the risks for both remained to the downside, at least in the short to medium term. The strong rally in prices during January has created a much more bullish perception of the market – prices have shot up 19% from the lows around $7,200/tonne in mid-December to $8,600/tonne in late January and early February. However, in our view, this strength is not built on the fundamentals, which makes the gains vulnerable. This doesn’t mean to say that prices won’t rally further – they may if central banks keep the liquidity taps open – but it does mean that prices have become disconnected from the physical fundamentals again. It is reminiscent of the situation a year ago, when QE2 drove copper to well over $10,000/tonne, despite a very troublesome macro and fiscal backdrop. Admittedly, the US is better shape now, but it is still vulnerable to contagion from Europe, where the crisis has merely gone from bad to worse. On the China front, although apparent consumption looks strong, real consumption is certainly not, and there are plenty of reasons to retain a cautious outlook for 2012.
For this week it was with very careful steps that the participants entered the market on Monday morning following Sunday’s late agreement where the Greek Parliament approved the country’s new loan agreement with the Troika. Out of 300 lawmakers, 199 voted ‘Yes’, while 74 voted ‘No’ and five voted ‘Present’.
This morning London copper was almost unchanged after slipped by nearly 4 percent from 5-month peaks of $8,765 a tonne reached last week, as investors took a cautious stance over Greece's approval of harsh austerity measures and traders noted scant buying from top consumer China. Three-month copper on the London Metal Exchange traded at $8,403 a tonne by 0757 GMT, down 0.26 percent from Monday's close, and retreating from modest gains early in the session.
Sharemarkets and the euro were showing some signs of risk aversion on scepticism that Greece's harsh austerity measures will be implemented and after ratings agency Moody's downgraded several smaller European nations and placed others like France and Britain on watch.
But the impact on metals was cushioned by copper's recent price decline, said Nick Trevethan, senior commodities strategist at Australia and New Zealand Bank. "You’ve seen a decent fall in prices in the last few days," he said. "It’s getting a little more attractive for Chinese purchases, although it’s still bit high for them to leap in with both feet." China is the world's biggest copper consumer, accounting for around 40 percent of refined demand.
Greece has admitted it still faces a tough job in persuading the European Union and IMF to save it from bankruptcy even after parliament approved savage extra budget cuts, provoking a night of looting and burning in central Athens.
Also tempering risk appetite, rating agency Moody's warned on Monday it may cut the triple-A ratings of France, the United Kingdom and Austria while it downgraded the ratings of Italy, Portugal, Spain, Slovakia, Slovenia and Malta.
