Lisbon, Portugal 08/03/2016 - Standard Chartered sees LME copper prices recovering to $6,000 once investors come back to copper in the second half of this year although they are held back in the short term by a weak Chinese physical market.
The broker sees copper prices averaging $5,500 in the third quarter of this year before rising to $6,000 in the fourth quarter.
On the LME, three-month copper hit a 2009 low of $4,318 per tonne on January 15 before rebounding to its strongest since November above $5,000 last week. It has currently settled back to around that psychologically important level.
"We've seen a significant reduction in the market's bearishness to copper in the last three to four months," Stanchart metals analyst Nicholas Snowdon said in a presentation to delegates at the Metal Bulletin Copper Conference here on Tuesday.
Investment funds in both the western world and China have switched away from a very bearish view on copper price, he added.
"In general we've seen the investment community moving towards a neutral position on copper," Snowdon said, citing data from the Shanghai Futures Exchange and the LME.
At present, however, a soft physical market for copper cathodes in China is preventing any price rises.
"We've seen the SHFE forward curve moving into a sizeable contango with discounts on physical cathodes, suggesting more than ample metal in the Chinese market… it's difficult to be bullish when the Chinese physical market is in such a soft stage," Snowdon said.
But Standard Chartered is bullish on copper prices due to its forecast of a supply deficit into the second half of this year and into 2017.
"There are not hidden stocks in the western world - the market [there] is very tight," Snowdon claimed.
The Chinese SRB publicly buying 150,000 tonnes this year indicates that the government there is willing to support the domestic copper industry when needed, which is also bullish for prices.
But if Chinese smelters renege on their agreements to make cuts to copper production, this could damage support for the red metal.
"If the market sees that there is ill discipline, that would be a signal for bearish sentiment to the market," Snowdon said.
(Editing by Mark Shaw)