Copper: Codelco Chairman Warns Against Rally
Copper prices rallied for their fourth consecutive week this week, trading back up to levels not seen since mid-2014 and have risen nearly 50% against its price at this same time last year. Reuters reported that weekly stocks of copper in warehouses registered by the Shanghai Futures Exchange had risen over 8% in the last week while on-warrant inventories (those not scheduled for removal) had halved over the past six weeks. In contrast to this, stocks at warehouses registered by Comex have now tripled since November last year and are at levels not seen since 2004 – this has partially been driven by a surge in hedge fund speculation.
The chairman of Chilean copper producer Codelco, which is the biggest global producer of copper, voiced his doubts over the likelihood of further upside in the metal saying “I’m a little skeptical.. in the short term. It’s true that all of the fundamentals are good in the medium- and long-term…but I would be very cautious.”
Prior to this recent rally, investment banks and industry analysts had forecast Copper levels well below the current price and the 13% rally we have seen over the last month is likely to see a sharp revision to these forecasts despite bearish forecasts.
Recent strength in China data has also been adding support for the metal with robust housing data and solid manufacturing growth fuelling speculation of further demand for the popular industrial metal which has risen despite a small rebound in the Dollar this week.
This week’s copper rally has seen price moving up to levels not seen since September 2014. With price having broken above the bearish trend line from 20111 highs as well as the 2015 swing high, the next key resistance level will be the late 2013 high around 3.262 which is also the 50% retracement from 2011 highs. This is likely to see some profit squaring and selling interest on the first test at least. To the downside, the first key support should be a retest of the broken 2015 swing high around 2.949.
