OZL (ASX) monster commodities bounce

Originally posted by bbloff ↑

dont get ahead of yourself

NEW DELHI: You must be wondering why copper prices are on the rise when the world economy is facing the worst recession this generation has seen. Nothing new in it. It is the same old case of China, the world’s largest user of the red metal, buying a lot of the metal for stockpiling.

Then, why should China buy so much of the metal now? There are reasons like the very secretive Dragon nation wants to make maximum use of the low prices compared to last year. China’s copper imports in the first two months of 2009 were up 71% on last year.

And most of the buying by China is to stockpile by the State Reserves Bureau. SRB is in the process of securing 300,000 tonnes — 2% of world copper output.

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So, copper prices are going up just because of the Chinese demand or their ‘secret’ plan to stock the metal.

Can investors bank on that factor only and invest in the red metal. That will be foolish that is what experts are advising.

According to researchers in base metals, copper bull run cannot sustain too long unless the US construction and housing sector witnesses major surges, which is almost unlikely now. This is despite the $1.1 trillion stimulus package announced by the G20.

And, if copper demand is up that means a country’s economy is in a strong position, that is what experts say because copper price tends to be a leading indicator of trends in the global economy.

As one of the most important and widely used base metals in construction, demand rises and falls along with the health of the wider economy.

Copper prices soared by 50% since December, sending cheer among miners and copper investors. But the creeping question now is whether the red metal continue its rally like gold.

When you talk about copper you can’t ignore the US. So, it’s not yet clear if US demand has bottomed out, the housing market there is still in dreadful shape, while Europe is depressed and going nowhere.

And unless the US shows some interest in buying the metal, it is difficult for copper to keep the momentum.

Another area where the investors should look to get hints on metal prices is shipping sector. Freight rates are an indicator for metals prices. While metal prices moved up, shipping costs came down 40% in the last month. That doesn’t sound good. So is it the time to book your profits in copper ? Maybe!