By Jonathan Barratt

As we mentioned last week when you have a metal that is trading just above its cost of production there is bound to be some form of response. At the moment we have just started to see some life back in the market. With copper having a reasonable bounce from its lows [at least until last night, in which metal prices fell in a thin, May Day holiday-impacted market]. One of the interesting aspects to this move has been the fact that premiums for the metals' delivery into Shanghai have increased dramatically over the week, indicating to us that it is not only fabricaters that see good value at current levels but also traders looking to secure contracts further out. Although we have to be mindful of the inventory levels (above 10 year averages), we have to appreciate that the metal has lost close to 20% of its value since January and as such we would expect a bounce of some magnitude to evolve. As China was on holidays up to today expect the price to be moribund until they return from holidays, when we can expect to see more support come back to the market.

At the moment we remain focused on two major aspects of the copper market one is the housing recovery in the US and the other is demand from China, the number one consumer of the red metal. We will also continue to monitor resistance at US3.40 as a break here could potentially see a good run to the topside emerge. As it stands we continue to look for a push towards the highs late Q2 or early Q3.

Whilst US3.00 holds, our bias is for the metal is to trade higher.

Chart Point - Copper

Technically, we feel that we are close to a low. The divergence being formed provides a clue that we are close to a low of some significance and are tempted to but a long position in play.