Copper has had a strong start to 2012, gaining around 15% to a five-month high above $8,500 an ounce. But the risk of a correction is rising.
Demand is "not that magnificent by Chinese standards", says Stephen Briggs of BNP Paribas. Imports into China, which consumes around 40% of the world's copper, have been strong but "the metal is getting stuck in storage instead of being put to use", says Tatyana Shumsky in The Wall Street Journal.
Manufacturing activity has fallen for four months, according to the purchasing managers' index tracked by HSBC, and the latest industrial output figures were weak.
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With Chinese demand subdued, inventories on the Shanghai Futures Exchange have climbed to a record. Standard Bank estimates the amount of copper stored in warehouses that don't report their storage levels has doubled since October.
Europe's economy is sputtering and the prospect of another round of printed money from the Federal Reserve has receded. The prospects for a supply increase have improved too, after continual disruptions to production over the past few years.
Commerzbank reckons the supply deficit will have disappeared by next year. Copper's upswing, says Briggs, "is getting increasingly hard to justify on fundamental grounds".
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