SINGAPORE: Copper prices may be set for recovery over the next six weeks after signs that top consumer China's economy picked up in October, with several banks flagging bullish price prospects from current levels.
Barclays, ANZ and Natixis have all noted improvements in copper's fundamental picture in the past week that have the potential to spur price gains in the short- to medium-term.
"Chinese activity and trade data ... were a bit stronger than expected so it does appear as if the phase of weaker Chinese data has come to an end," said Kevin Norrish, a commodities analyst with Barclays in London.
"Although there may not be a massive rebound, we expect that in its own right it will strengthen sentiment towards copper enough to give it a reasonable close into year end, especially compared to other metals."
Three-month copper on the London Metal Exchange was little changed at $7,677.50 on Wednesday after bouncing from two-month lows of $7,506 hit last week. A liquidity-driven rally that pushed up prices nearly 10 percent in September has all but petered out, with copper up just one percent on the year.
Figures this past week support the view that a long slide in China's economic growth may have ended, analysts say.
China's trade surplus ballooned to its biggest in 45 months last month, with export growth at a five-month high while power consumption, a proxy for economic activity, rose an annual 6.1 percent, reversing a downside trend from September.
China is the world's biggest copper consumer, accounting for 40 percent of refined demand last year. Consumption growth of 5 percent is expected to pick up to 5.5 percent in 2013,
state-backed research firm Antaike says.
Adding to the case that copper prices may have found a floor was news last week that strategic body China's State Reserve Bureau was offering to buy metals, Natixis said.
"(They) would be unlikely to act purely to support local producers unless they were confident that there would be a genuine need for the metal being stockpiled," it said.
"This ... suggests that it is part of a more comprehensive plan that will involve a more significant expansion of infrastructure investment and therefore stronger demand for base metals in the months ahead," it said.
China recently gave the green light to 60 infrastructure projects, including plans to build highways, ports and airport runways, worth more than $150 billion, as it looks to energise its economy. Many of the projects will be metals intensive.
NAYSAYERS
Still, some traders remained skeptical that a rally would prove anything but short-lived, with stockpiles mounting in China, a drop in imports and only a modest uptick in the physical market.
"It's way too early to say fundamentals are improving for now," said a trader based in Shanghai.
"Agreed that we are likely see some bounce back on short covering here, but I'd say the surprise is more on the downside for the rest of 2012. I think it is good to re-enter some short positions at $7,800-$8,000," he added.
Standard Bank also flagged China's faltering construction sector as key because manufacturing and exports amount only to a modest portion of its overall commodity demand.
"We struggle to see construction growing at the same rate it did between 2009 and 2012 anytime soon ... As a result, we may not see physical buying activity in commodities with large exposure to construction pick up substantially even if economic growth in China improves," it said.
China's copper import growth slowed sharply to hit a 17-month low of 321,879 tonnes in October, customs data showed on Saturday, the lowest volume in 15 months and the first annual drop since August 2011.
Copper stocks have swollen to stand at or near record highs. Inventories in warehouses monitored by the Shanghai Futures Exchange are at a six-month high of 204,995 tonnes, while bonded stocks are close to record levels between 800,000 and 900,000 tonnes, traders said.
Still, China's thinning imports can be explained by a week-long national holiday in October as well as a pop in domestic production to record highs, ANZ said in a note.
"We think that the slide in prices from mid-September highs above $8,400 has bottomed and we expect to see prices push higher in the absence of shocks from the United States or Europe, targeting resistance at around $7,840 in the next week or two," it said.
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