Copper – market expects major slowdown in China

Copper prices remain stable near 6600-6700 USD/t. After a sharp sell-off in March, the prices in the last weeks rebounded slightly when Chinese media began to spread rumors about a new stimulus measures. It caused a small profit taking from short positions (by non-commercial investors) as those rumors helped to convince some investors that the government will not let the GDP growth fall below 7,5% target.

Some government officials has already acknowledged that new infrastructural projects in small and medium cities worth 160 bln USD would be a crucial part of the new stimulus measures. What is more the central government openly encourages local governments to tackle the problem of slower growth with new investments projects. It proves that despite the fact that Chinese officials promised to change the engine of the growth from investment to consumption, recent slowdown proves that Chinese economy is and for a long time will be far from rebalancing.

For copper market bulls it’s a great news. The new measures should help to maintain not only GDP growht but also the global copper demand growth near 2-3%. That is why in our opinion the scenario of 600k of oversupply on the copper market is still a base scenario for the market.

Conclusions

We still remain bearish on copper. The surplus is still an important factor keeping a lid on the market prices. That is why in our opinion, any correction in copper downtrend (announcement of new stimulus measures) seems to be favorable for sellers to take advantage of. Our end-year goal remains at 6500 USD/t.

US.500, D1 – the S&P500 futures contract plunged last week. The bulls has capitulated and the market has broken an important level at 1831 pts.
The sell-off has stopped at the lower limit in a main (blue) upward channel which is a crucial support.
If it is broken we can expect further decline towards 1764 or even 1726 pts. as a more complex C wave in an irregular correction. The wave C should consist of five waves so the way for the next downward moves is sould be open.

COFFEE, W1 – a strong rally has been observed on the coffee market. As a result the price has reached the highest levels since February 2012.
Looking at the whole structure we can spot a five waves so it seems that the upword movement is about to finish and now we’re waiting for confirmation.
If a (black) trend line is broken the market may decline to the low of wave 4 (166,47 USD).

COPPER, W1 – nothing has changed on the copper market from the previous analysis.
The market is creating a corrective wave four.
According to the Elliott Wave Theory we can expect another decline as a wave five with a key support at 6337 USD. If it is tested the bulls may enter in to the market and may create a larger upward movement with a target at 6850 USD (bearish gap).