PL: Copper comes off as dollar firms, market remains bullish: sources
Copper remained in focus Wednesday in London bolstered by sound fundamentals--lower ore grades, reduced production, increasing demand--and also speculative interest on the back of the launch of physically backed Exchange Traded Commodity funds, sources said.
Copper rallied to fresh highs this week hitting $9,927/mt on the London Metal Exchange on Tuesday.
Citigroup strategist David Thurtell told Platts that "a lot depends on the take-up of the ETCs. If they scoop 100,000-150,000 mt, there should be no trouble making $10,000. I think the market is tight, but specs are aggravating that tightness."
A trader said "it did feel like buying dried up yesterday, and with the backwardations within the spread easing a touch--tom/next not flaring up--it looks like a big short has covered for now. Technically the market has encouraged some short-term selling."
Overnight in the US, the Federal Reserve Open Market Committee said it will continue buying bonds and other securities to the value of $600 billion up until June owing to the fact that the fiscal recovery is "insufficient to bring down unemployment."
US unemployment currently stands at 9.8%. Short-term interest rates were also kept at zero. This helped kickstart the dollar and in turn pulled back on commodity prices, including copper, which was spot bid at $9,078/mt by 1120 GMT Wednesday.
On the London Metal Exchange, a dominant position in copper that had reached over 90% of warrants earlier in the week eased slightly Wednesday.
There were press reports that JP Morgan has denied having the position, although the company was not available for comment on the matter to Platts.
The trader said, "there's still a lot of talk about the dominant long in copper warrants, though today that is under 90%. The medium-term picture remains fundamentally very bullish, as nearly all analysts seem to agree on, but that doesn't mean as we run up to year-end, New Year and then Chinese New Year, that price action will be quiet, copper could easily come back to $8,500/mt and still be in uptrend."
EYES ON EXCHANGE-TRADED COMMODITIES
BNP Paribas strategist Stephen Briggs said in a research note that "copper's spectacular recent performance has been all the more remarkable for being in splendid isolation. The launch of physically backed ETCs by ETF Securities may have played a part."
"At the current price all LME copper stocks could be bought for little more than $3 billion. Yet nickel is much the same, and it would take just $0.4 billion to sweep up all the tin," he said.
He added in the note that "the existing and proposed ETCs could well tighten the copper market yet further but it is becoming ever more apparent that real tightness looms anyway. Most commentators have been steadily raising their forecasts of the copper market deficit and BNP Paribas is no exception."
Regarding talk that a participant may be trying to corner the market with a dominant position, a US physical trader said he doubted the fact.
"The market is way too big; if you start doing that stuff, generally you get caught in the squeeze. You have to hedge it at some point, and when you hedge it, they will get you in that month. You will be the one that ends up getting hurt," he said.
"Now do I think all of the big boys squaring off is going to cause problems?...Yes, either they are going to clean it up or one of the big ones is going to lose a lot of money and it will clean itself up that way. But right now, I think everyone seems to be getting their metal so this is not one of those things you need to get into a panic about," he added.
Looking at the wider picture, Goldman Sachs analysts wrote in a research focus looking ahead to 2011: "Entering into 2011, we expect the base metals market to start a gradual transition process from a structurally-driven market as we have seen in 2010 to a cyclically-driven market marked by supply and demand side differentiations. Part of this transition process is the return of consumer-driven demand: not only in the US, but more importantly from China."
It added that "copper and zinc will see greater upside to prices as they are more cyclically leveraged to stronger near-term demand prospects from construction."
