Market and product

LONDON (Commodity Online): Fears of a forcible liquidation of inventory causing fall in prices may be overblown, according to Barclays Research.

Barclays in its interactions with trade houses reported that drop in prices could force close out of long hedges but there have been few signs of large-scale physical selling.

"This year’s financing fears are not the first to hit markets. Last year, a blowout of interbank rates in June triggered a similar fear that copper financing deals would need to be unwound, and copper sold off. In reality, bonded inventory fell because Chinese prices were consistently higher than import prices, and importers decided to sell the bonded copper in the Shanghai market instead. Another example is the sharp CNY depreciation back in 2012, which reduced financing appetite but did not trigger inventory liquidation. The current weak sentiment would certainly mean that fewer new financing deals are struck, which will reduce the inflow of copper into China and push premiums down."

Copper prices have fallen 12%, the most among 24 raw materials in the Standard & Poor's GSCI Spot Index,, on concern that fall in manufacturing grwoth in China would reduce demand. US Copper futures for May delivery had touched a low of $2.908 per pound, the lowest for a most active contract since July 6, 2010.

If China’s government “again leans on targeted investment to protect growth, it would be positive for metals demand,” Barclays said.Orders to remove copper from warehouses tracked by the LME gained 8.8 percent, the first increase since Feb. 19.