China is copper’s biggest consumer and it seems to be the price maker for this market. Wider emerging markets growth also supports demand. But it’s not enough.
You see, copper is used as an industrial metal, in electrical goods, housing and cars. But globally these three sectors are still suffering.
Take a look at today’s chart which shows spot prices for copper for the past year. It is some way off from its August 2008 high (circled). On 8 July, copper consolidated to $2.14 (circled). Then it surged to hit new highs for 2009.
Copper is a bellwether for the economy but its recent surge is hope-based 
This is interesting as stockpiles of copper held by the London Metals Exchange (LME) have risen by 13% over the past month and Chinese copper imports have fallen for the first time in 2009 last month.
However, China’s economy has been growing at around 8%. And future GDP growth forecasts, both from the International Monetary Fund and investment banks, are positive. This has pushed copper’s price to rally on anticipation of future demand.
But investors need to be cautious. Speculators have driven copper above levels supported by current demand.
In the long term, we’re bullish on copper prices, but it’s vulnerable to sharp corrections along the way. You’d do well to watch out for pullbacks if prices rise to the $2.9 level – its pre-Lehman collapse high – which it hasn’t re-tested since then.
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