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Welcome to Profit Confidential • Tuesday, May 22, 2012

Following China’s Growing Demand for Copper

Monday, July 23rd, 2007
By George Leong, B.Comm. for Profit Confidential

High-grade copper prices are close to a contract high for the September expiry. The September contract is approaching $3.70 after rebounding off some minor technical support at $3.20 in late May. The previous surge to nearly $3.80 in early May failed to hold on demand concerns relating to the soft housing market. Based on the price action, there is selling at $3.80 on the chart.

Global demand remains healthy, but any signs of weakness in demand could send the metal down mercilessly. In the U.S., we are seeing a downtrend in the housing market, a major user of copper. Also, a potentially slowing U.S. economy could also drive prices lower.

An insatiable appetite for copper in China for the country’s massive infrastructure buildup has helped to drive prices higher. So far, construction in China remains strong, but the potential of rising interest rates there could take a bit out of demand.

Taking a look at the chart, the September high-grade copper future is trending higher. The near-term technical picture is bullish with relatively good Relative Strength, which needs to rise in order to support an upward move.

Copper may be vulnerable to further selling in the near term. Watch for support at the 20-day moving average of $3.53. Failure to hold here could see a move to the 100-day and 200-day moving averages at $3.34 and $3.13 respectively.

The reality is, if the global economies slow, copper can take a major hit. Japan increased its interest rates for the first time in quite a while, and China continues to do so in order to combat the superlative double-digit GDP growth and potential threat of inflation. Rising global interest rates could impact growth, and ultimately, the demand for copper.

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Profit Confidential AuthorGeorge is a Senior Editor at Lombardi Financial, and has been involved in analyzing the stock markets for two decades where he employs both fundamental and technical analysis. His overall market timing and trading knowledge is extensive in the areas of small-cap research and option trading. George is the editor of several of Lombardi’s popular financial newsletters, including The China Letter, Special Situations, and Obscene Profits, among others. His trading advice on stocks and options is also found on his daily trading site, Daily Profits. He has written technical and fundamental columns for numerous stock market news web sites, and he is the author of Quick Wealth Options Strategy and Mastering 7 Proven Options Strategies. Prior to starting with Lombardi Financial, George was employed as a financial analyst with Globe Information Services.

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