This is the time of year when markets make fools of us analysts. It is the time to guess at how copper prices will perform for the coming year. In recent years, forecasting copper prices have become increasingly complex because of the huge intrusion of the financial sector into copper and other commodity markets, which has resulted in there being established a direct correlation between equity markets, the US$ and copper prices.
This is a brief interim note to be followed by a detailed report later this month, but it contains our principal reasons why copper prices this year won‟t live up to the hopes of so many bulls.
The year started with a bang; the US$ was weak, equity markets were strong following encouraging data from the USA and copper prices rose to $9750, since pulling back. However, the financial sector remains fragile with substantial sovereign and private sector debt to be rolled over, many in the early months of this year.
It has been the performance of China‟s economy which has driven global growth and, on its path, equity and commodity markets. China is now in that murky period of a leadership transition made even more complex than usual by an avowed wish to establish a new economic model which would bring economic growth down to lower but sustainable levels. In the process, domestic consumption is seen as the future driver of economic activity with exports being given a lesser role.
Such changes bring with them their own conflicts, conflicts between what Beijing sees as the future and what coastal governments have experienced as their principal source of growth. In the meantime, notwithstanding China‟s CPI data, which significantly understates real inflation, there are real concerns within the PBOC and others by the rising cost of living and input costs to manufacturing