The copper price is expected to move downwards in the second half of the year with only supply-side disruptions possibly preventing a softening in price.
The Fortis Metals Monthly said today the bullish case for higher copper prices rested too heavily on the assumption that Chinese demand for refined copper will recover after the seasonally lower demand of mid-year.
The report said the Chinese government's determination to rein in the country's growth will be more evident after the Olympic Games event and risk will then be fully to the downside.
The Chinese economy was facing the challenges of falling external demand and the need to combat rising inflation and OECD economies were suffering from weak demand and unhealthy construction markets. These factors implied that only supply-side disruptions in copper would keep the price from softening.
The report said the copper price may see fresh record highs in the very long term, especially if costs of some of the planned new mine projects spiraled and mining companies were unwilling to take the risk.
Global copper mine production fell every month between October 2007 and February 2008. While this put more pressure on copper concentrate supplies, the capital and fuel costs involved in building new mines or expanding capacity of existing mines continue to escalate.
The copper price in dollars has surprised the bears this year, but this was in part misleading as the US dollar has declined significantly.
The copper price also reflects the fact that supply issues persist in the market and that Chinese demand remains strong, while it is not growing at the rapid pace of 2007.
The copper spot price eased down to as low as $7,825.25/t at the start of June - its lowest since 20 March - before recovering at $7,930/t. The drop below $8,000/t was widely expected to spark a fresh round of buying from China, but the world's biggest consumer has moved into a seasonal slowdown for industrial activity.