Copper: housing slump v. Chinese demand

Copper is at long term resistance, and a pretty significant one at that (shown below). Because copper is a core resource in home building (electrical wires, pipes etc.), it is considered the best indicator (also, timely response) for the health of the housing market. Indeed, the price of copper peaked at the same time the housing market peaked during the second quarter of 2006. Consequently, the price of copper lost most of its 2004-2005 gains by early this year. Copper inventories rose rapidly, resulting from a slowing demand in the U.S. housing market which is second after China in copper consumption. Despite the rise in inventories, copper supply is nowhere near 2003 levels, while Chinese demand for copper continues to grow. The big question is whether China continues to buy copper (on top of increased efforts in mining and recycling) as the price of copper tests the current resistance level for the fourth time in the past two years.

[Copper spot: three-year chart]


[Copper inventories: three-year chart]