2012 Copper Q1 Market Trends And Outlook

By Shihoko Goto — Exclusive to Copper Investing News

2012 Copper Q1 Market Trends and Outlook

Concerns about China's growth prospects, most notably the possibility of interest rate  h ikes to prevent the economy from overheating, kept copper investors on their toes throughout the first quar ter, but in the end the red metal came ahead nearly twelve percent from a year ago. It was the metal's biggest quarterly gain since the end of 2010. However, questions remain as to whether that upward momentum can continue, despite the US economy in particular showing signs of steady expansion.

China consumes about 40 percent of the world's copper, and over the past few years its red-hot economy has effectively allowed demand for the metal to continue climbing. Indeed, Beijing reported that a key Purchasing Managers' Index rose to a one-year high of 53.1 in March. Nevertheless, there is increasing concern that the Chinese economy is not expanding quickly enough, and speculation that Chinese authorities will be cutting interest rates in the coming months to keep the economic engine revving. In fact, Chinese Premier Wen Jiabao said in March that the country's projected GDP growth rate for 2012 will be 7.5 percent, down from the earlier forecast of 8.0 percent.

Beijing is also concerned about the real estate market overheating, and Jiabao said following the annual National People's Congress that the authorities “must not slacken [their] efforts in regulating the housing sector.”

Meanwhile, investors will keep close tabs on copper stockpiles on the Shanghai Futures Exchange. Chinese copper imports have increased steadily over the past few months, as have warehouse inventories, suggesting that the country is stockpiling much of the metal instead of consuming it.

Steady US expansion, timid European rebound

Investors have been heartened over the past three months by data upon data that suggest the US is gaining a firm foothold on economic expansion. Certainly, there have been plenty of signs of growth: jobless claims reached their lowest level in nearly four years while housing prices appeared to stabilize, and manufacturing is expanding faster than expected, with the latest factory index by the Institute for Supply Management rising to 53.4. The problem is that the US accounts for only ten percent of the overall copper market, thus limiting its impact on the red metal's price no matter how robust its economy may be.

Meanwhile, with panic about a potential collapse of the euro now effectively gone, overall market sentiment has improved regarding Europe's outlook. Yet with a sluggish manufacturing sector and unemployment in the Eurozone reaching its highest level in nearly 15 years, Europe is unlikely to be a major force in driving up copper prices.