Got a short on copper? Think again, says Morgan Stanley analyst Peter Richardson.
In January exchange stocks were at decade highs. The stock-to-consumption ratio was above a long-run average. Then copper prices fell to an 18-month low. In the year to yesterday, copper prices were down 6.7 per cent.
Yet earlier this month, between May 1 and May 3, copper rallied from $US6762 a tonne to $US7244 per tonne.
That shows the market has turned for copper, argues Richardson.
“First and most importantly, is a sharp rise in cancelled warrants, a sign of improving demand and warehouse bottlenecks,” he says.
“We think the feedstock market, previously the most compelling aspect of the bear case, is becoming increasingly tight. Unexpected mine outages and a sharp decline in scrap availability is rapidly diminishing our allowance for supply disruption.
“Finally, we believe there are also signs of a modest improvement in demand in China, the world’s largest consumer of the metal,” Richardson adds.
He is sticking to his self described “optimistic” forecast for copper in 2013 of $US7793 a tonne, or $US3.53 a pound.