Some investors, like those at Goldman Sachs, are predicting a bump up in copper prices while those listed below believe there will be a drop.
Copper prices were weak during fourth quarter 2011, leading many buyers in China to stock up on the metal. Glencore International Plc, the largest publicly traded commodities supplier in the world, included this statement in the comments it released on Monday regarding the industrial metals market. Unfortunately, the picture is quite different these days.
Glencore reported that in 2011, production of the industrial metal declined. It expects this trend to continue this year until the ore to metal production cycle is "re-established." The lack of growth in supply explains the strong prices despite weak U.S. and European demand. During the second half of 2012, demand was driven by reaction to the financial crisis in Europe. When copper prices were low during 2009 and 2010, China built its inventories and by 2011, the supply had declined.
While Europe and the U.S. did not rebuild their inventories during 2011 due to uncertainty regarding Europe, China did. Price weakness during fourth quarter 2011 created the ideal situation for purchasing large amounts of this base metal. This supply was used to rebuild the pipeline for inventory and was provided to nearby locations. Then, the calendar flipped to 2012 and everything changed.
On Monday, U.S. copper futures fell approximately one percent, pressured by a reduction in the economic growth outlook for China. Concerns regarding Greek debt restructuring progress was also to blame. The metal was not the only thing affected as the euro hit a two-week low and stocks declined.It seems the ride is not over for copper prices this year, as the situation in Greece will continue to be a concern. The outcome of the Greek debt problem will impact many other nations. Price performance of commodities in general are expected to increasingly diverge throughout 2012, as monetary stimulus comes to an end and economies begin recovering.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.