The Trading Floor

[Arctec]

COPPER STRATEGIES

As we suggested in the introduction, the copper market seems to have thrown off the recent liquidative tilt fostered by the equity market with relative ease. However, we doubt that copper prices will be able to rise back above the late February highs in the face of any evidence that Chinese slowing efforts are bearing fruit. Furthermore, it would be equally surprising to see the copper market manage to rise to and above the late February highs in the face of noted and ongoing slowing in the US economy. Therefore, the copper market might not be as much of a hot trade idea as it is a potentially valuable leading indicator for a host of physical commodity markets. Certainly the copper market was partially lifted by short covering off a rather significant net spec short positioning, but it was also clear that the copper market was being lifted by ideas that the Chinese were indeed set to come back into the spot market for new supplies. In fact, last week the copper market managed a rather impressive bounce off its early lows off the idea that Chinese copper concentrate players were buying aggressively in the spot market. Certainly copper prices were given some lift off the fear of some supply threats, and with recent LME daily changes showing a bit of a decline for 2007, the trade is anticipating a renewed level of tightening ahead. However, the prospect of slowing in both the US and China isn't something that traders should discount, and upon a return to the $2.90 level basis the May contract, one might begin to suggest that copper is looking beyond the recent washout in the equity market and is indeed factoring a resurgence of growth. In retrospect, it would appear that the copper market rejects pricing under $2.57 as too cheap for conditions, but it remains to be seen whether or not pricing above $2.90 can be justified. Therefore, traders need to exhibit a bit of patience in trading copper, as buys above $2.6250 might carry too much risk. On the other hand, seeing May copper prices return to the vicinity of $2.90 without totally cleaning up the macroeconomic concern could represent a moderately overdone condition.