Expect copper correction

published 5 June 2006

Copper is due a sharp retraction it could "go back to $4,000-$5,000", says an anonymous market source, quoted in the FT. It reached a record $8,000 a tonne this week, up 75% since the start of the year, but many think the market has over-reached itself. Traders say the latest surge was driven by several large investors closing their short positions. These are thought to include China's State Reserve Bureau, buying to cover a reported 200,000 tonnes worth of short bets made by one of its traders last year, and US hedge fund Ospraie Management.

Copper's fundamentals are positive, but trading volumes have been declining and the exit of forced buyers could dampen the market. Any weakness in copper could spread to other metal markets. "When copper falls, so will aluminium, and that is true of zinc, nickel, or whatever," says independent analyst Cliff Green on Reuters.