Copper prices have maintained their strength in February, finishing the month on a high note as land buying has driven prices back up to 1750 dollars/t. With the physical markets mainly quiet, the macroeconomic data deteriorating, and the looming possibility of war in Iraq, this strength may seem rather puzzling, but it is at these points when lands sense an opportunity. On balance, they see better opportunities being long rather than short. Why? The argument for being long copper is based on the economic uncertainty due to the continuing prospect of conflict in Iraq. Whilst this is uncertain, investment decisions are being delayed, businesses are keeping stocks low, consumers are reluctant to spend, no one feels confident to travel, and generally markets appear moribund. However, the most likely outcome of a war in Iraq is a swift resolution, and if that is the case economic activity could rebound strongly as all the pent-up demand is released. In this event, commodity prices are expected to rise swiftly and copper is favoured for its liquidity and the underlying support gained from the producer discipline (it should not fall as far if things get worse). The other attraction is the Increasing likelihood that the current uncertainty will be decided one way or the other within the next two months.
展开▼
