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The copper price that has remained surprisingly strong will fall to $6,500/t during the fourth quarter of this year as world demand is weak, says the VM Group.

The Group said in its Fortis Metals Monthly that among base metals the elevated copper price has been the "greatest puzzle" up to a few weeks ago. It feels the strong price has not been supported by market fundamentals.  

Although warehouse stocks remain low and mine supply problems exist in Chile, demand from China has been very poor this year at more than 17% lower during the first half of 2008 compared to the same period last year. And in the western world, demand growth has likely been negative, said the report.  

The VM Group said it argued at the beginning of this year that the US-led economic slowdown would eventually lead to lower growth in Asia and the decoupling argument would consequently be wrong.

"We anticipated that the LME 3-month copper price would fall back to $6,500/t by the end of June 2008. Although our timing was wrong, our view of the trend was correct."

The copper price dropped below $7,400/t on 8 August and subsequently fell even lower threatening to dip below $7,000/t.

Copper is the metal that remains closest to its all-time high price and therefore the price is expected to fall during the fourth quarter.

The Group feels its view is supported by the fact that an investor that held a dominant position of 80-90% in live warrants had reduced the holdings to 30-40% of the warrants by 13 August.

"It appears that this long-standing copper bull has finally given up hope that the price is going to strengthen."

China's manufacturing sector is now also slowing significantly, its Purchasing Managers' Index fell in July - for the first time since the PMI began in January 2005.

The Group said the PMI fell to a "seasonally adjusted" 48.4 in July against 52 in June and the question was now whether Chinese buying of refined copper would return in force after the usual mid-year slowdown.

"Given the recent price slump, Chinese buyers may well hold off until it becomes clear where the price floor is," it said.

The VM Group believes the LME 3-month short-term price will range between $6,800-$7,800/t.