Turning more positive: fundamentals improving in 2H
Comment of the Day

May 04 2012

Commentary by Eoin Treacy

Turning more positive: fundamentals improving in 2H

Thanks to a subscriber for this interesting report from Standard Chartered focusing on the commodities market. Here is a section:
We are in no way changing our house view that copper prices could face near-term headwinds for price increases. As reported by our commodity team of Judy Zhu and Han Pin Hsi in their report, Copper – Cu at the warehouses (26 April 2012), they were surprised by how much copper is being stored in warehouses. Copper has baffled investors, to say the least. Industry thinking teaches that when traders accumulate copper inventory, like in China, prices would come down sooner rather than later.

Price action in the past week has indicated the opposite, as copper was squeezed 6% amid rising copper inventories. We recall trader Yasuo Hamanaka and how the 500,000 tonnes of copper he bought illegally was sold back into the market in 1996. The price of copper collapsed, falling 35% over 6-month period, and Sumitomo wore a US$2.6 billion trading loss.

Eoin Treacy's view This report mirrors our view that improving investor interest in the Chinese mainland's stock market could have a beneficial effect on the shares of industrial metal miners. The question now is whether this will be offset by the targeting of commodity prices by the CFTC in hiking margin requirements for speculators.

Copper prices recouped the entire September decline by February and ranged below the psychological $4 level until April when it broke downwards. It encountered resistance in the region of the lower side of the short-term range this week and a clear upward dynamic will be required to check potential for some additional weakness.

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