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Copper supply is already tight and demand is rising

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The London Metal Exchange, the world's largest metals exchange, reports that copper stockpiles from the U.S. to China are already at 2-1/2-year lows and poised to decline for the fifth month in a row. The news has awakened the slumbering copper bulls to move speculation, sentiment and pricing to the highest level in two months.

In general, global commodities have been moving higher, fueled by euro zone policymakers' approval for a 130-billion-euro ($173 billion) Greek bailout to help avoid a March default.

Coupled with China's February 18 cut in reserve requirements for banks -- which goes into effect today -- and there is plenty of cash out there for industry to buy the copper they need for everything from construction to power cords.

But the real story here is that already-tight copper supply looks to be moving into its third consecutive annual shortfall.

Between China and the United States, roughly 55% of the world's copper is already spoken for in one form or another. China alone consumes nearly 40% of global mine output, which created a 119,000-ton shortfall in November.

Analysts estimate a copper shortage of 376,000 tons this year and continued undersupply through 2013.

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A quick look at the COPX daily chart reveals that price bottomed on October 4, 2010 at $10.30.

More recently, price has moved sideways, bouncing of the 0.618 retracement twice -- a double bottom.

Price is currently attempting to break out at the upper end of the channel.

The fuel gauge continues to indicate strength, suggesting traders may want to keep COPX on the radar screen in the event of any break out of the sideways trading range.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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