Singapore 25/01/2016 - Copper recovered last week alongside the oil and equity markets but the worst is unlikely to be over for the metal while its fundamentals remain poor, Barclays said.
Copper prices climbed nearly three percent over last week, a sign of easing in recently bearish sentiment after two weeks of commodity and equity declines and of short-covering after a period of sustained sell-offs, the bank said in a report on Monday.
While copper prices could stabilise over the next few months, further downward pressure is possible unless demand indicators change meaningfully, it added.
"It is highly unlikely that the record low prices copper reached in the beginning of the month are to be the lows for the year," Barclays said. "The weak demand environment, coupled with rising risks in both developed markets and China, make it likely that copper will hit fresh lows sometime this year."
The fresh lows are likely in the second half of the year, with prices set to average $4,180 per tonne in the fourth quarter of 2016, the bank forecast.
Still, a short-term recovery or at least stabilisation is possible if news reports that copper inventories are lower than headline data suggest prove true and also if oil prices recover, it added.
"If indeed the lows seen last week were a bottom, and oil continues to recover over the coming weeks, bullish sentiment could spread across the commodity complex, lifting copper," Barclays said.
Copper may see a period of price stabilisation over the next few weeks while China gears up for its New Year holiday, which starts on February 8.
"But the overall macro picture continues to remain neutral at best and bearish at worse for copper, and we expect fundamentals to reassert themselves before long," it added.
LME three-month copper price dropped to $4,318 on January 15, the lowest since May 2009. It was last at $4,437 per tonne on Monday, down $6 on Friday's close.
Benchmark crude oil prices sank below $27 last week before recovering late in the week to above $30 per barrel. But they remain around 12-year low levels due to oversupply.
The WTI crude oil March contract was last at $31.40 per barrel, down 2.45 percent, while Brent crude fell 2.83 percent to $31.27.
(Editing by Mark Shaw)