According to the report, a number of countervailing forces have conspired to create this volatility, including, mine supply disruptions, both labour and weather-related, which have had a positive effect on the price; monetary tightening by the Chinese government which has led to destocking and a "hand-to-mouth" approach to copper buying by Chinese consumers and "cyclic risk-on and risk-off trading based on EU and US macroeconomic issues, which has been both positive and negative."

These forces, the VM Group says, "have - until now - played against one another, providing a cap and floor to the copper price for the past five months. But market conditions are rapidly changing, and for the worse."

One of the big blows to initial expectations of a sustained supply deficit has been the lack of growth in apparent demand from China.
As the VM Group points out, refined copper imports over the first eight months of 2011 fell by 27% year-on-year, to an estimated 1.49 Mt, while implied copper consumption (refined production plus refined imports minus refined exports, and adjusted for visible stock changes) has weakened from an annual rolling high of 7.70 Mt in January 2011 to an estimated 7.51 Mt in August; a decline of 2.5%.

But, it says, this may be changing, "August's copper demand level is the third successive month where China's implied demand has increased from May's low of 7.34 Mt. But on a global calendar year basis, this overall softening in Chinese demand has helped ease 2011 deficit projections and may have even pushed the market into surplus in some months."

Eoin Treacy's view Copper prices have been ranging mostly above the $9000 level since early this year. However, a mild downward bias, with a progression of lower rally highs, is evident and it has picked up pace of late. The $8500 level offered support in May and August but copper broke below that level this week. A clear upward dynamic, held for more than a day or two, would now be required to offset Type-3 top formation completion and to suggest demand is returning in this area.