(Minews) - It’s when you’re down that you know who your friends are.
Copper’s sharp decline to a five-and-a-half-year low on Wednesday prompted an outflow of negative sentiment. Furthermore, in the wake of oil prices slipping lower, some market participants have been comparing the trajectory of the red metal with that of black gold.
Others, however, are standing by the metal.
“We were surprised by last week’s 6% correction in copper, but with no evidence of impaired trade or a collapse in demand, we remain bullish on the copper outlook,” said Morgan Stanley in a research note.
Its main reason to be cheerful is that copper’s fundamentals are largely unchanged. There is a modest surplus at the moment, but the market is moving into deficit which will shore up prices.
“Effectively, there is not enough new supply coming to the market to satisfy even flat demand growth from here,” said Clive Burstow, a fund manager at Baring Asset Management.
Copper is being dragged down by the decline in oil, which has fell almost 50% in 2014. That has a knock-on effect through commodity indexes, which are often heavily weighted towards oil. A slump in oil drags down the overall index, which in turn drags down other commodities.
This fall in the copper price is likely to activate bargain-hunters looking to pick up copper on the cheap.
“Copper, while coming under heavy pressure, is fundamentally much stronger than consensus expectations, with scope for tighter than expected refined balances, tighter spreads and stronger prices,” said Standard Bank in a research note.
LME copper is trading down 0.7% at $5,671.00 a metric ton.
