While strong, secular demand growth from the world’s emerging markets paints a rosy long-term picture for copper prices, the present state of the economy and unrelentingly bullish copper outlook may lead to a cloudier immediate future for the commodity.
“We saw the developed world’s demand falling by 20% to 30% year-over-year – Japan -30%; USA, Europe -20%. Still the price of copper gained 150% from its trough and stays only 20% far from its pre-recession peek,” said Gabor Szocs, a portfolio manager with Concorde Asset Management, based in Budapest, Hungary. Szocs attributes this price standoff to China’s fiscal and monetary stimulus program, and resulting massive copper imports.
“China imports two to three times more copper than in the boom years before the recession. I don’t agree with those who consider this sustainable,” Szocs said. “I believe this massive inventory building will come to an end soon and probably before the developed world’s economic demand will gain foot.”
Despite copper’s scarcity, Szocs warns that the metal’s supply will not stand in the way of a price correction, given copper’s marginal cost of production. And with the global economy in the midst of a slow and most likely painful recovery, the portfolio manager affirms that now is not the time for naive pricing or optimism.
“So what I would like to say with this is that the level of the copper price is pricing in an unrealistically high expectation of the future economic growth.”
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