Copper prices have outperformed the overall metals market as traders have closed short selling in expectation of government intervention to boost growth, but the metal may still be slightly overvalued, according to a Monday report by Barclays.
Copper, which is used as an electric conduit in many industries, has been affected by some short selling, but market fundamentals have kept prices reasonable close to fair market value, according to Gayle Berry of Barclays Commodities Research. Copper fundamentals are also strong, wrote Berry, with mine and refined production underperforming expectations during 2012. The result could be a deficit of the metal, which could cushion any drops in prices.
As a result, short selling of copper could affect prices in the near-term, but copper prices remain only slgihtly overvalued, wrote Berry. A model simulation puts the copper price of around $7,450 per metric ton at an overvaluation of $250 per metric ton. This number is much lower than recent situations of overvaluation, including an overvaluation of $600 per ton as recently as May.
London copper had been trading at a one-week high on Friday, but fell in Monday trading on the London Metal exchange. Three-month copper in London was down 0.3 percent to $7,680.25 per ton in Monday evening trading from $7,730 per ton on Friday. Some buyers chose grains futures instead, although China's announcement of increased economic stimulus helped cushion losses, reported Reuters.
Copper for September delivery, the most actively traded future, was down Monday by 1.90 cents, or 0.5 percent, to $3.4850 per pound in the New York Mercantile Exchange Comex.
The near-time changes in copper prices depend greatly on Federal Reserve Chairman Ben Bernanke's Monetary Policy Report to the Congress, to be released Tuesday morning. The report could provide clues as to whether the Fed will enact a third round of quantitative easing, or QE3. This government intervention could boost copper prices.