Over the past month, copper prices have reached the lowest level in 18 months, dipping below US$7000 per tonne, as concerns over the robustness of Chinese growth have weighed on the outlook for demand. Early indications of a decoupling from other cyclical assets like equities suggest that fundamentals are playing a larger role in driving prices. In our view, recent negative investor sentiment appears to overstate the bearish case for copper.

Copper is a key input in the industrial production process ranging from power generation to construction to the automotive sector.

At the beginning of the year, most copper market watchers expected a surplus as rising production outstripped more modest demand growth.

With the global recovery remaining fragile in the face of the recent moderation in growth prospects for the US and China, copper prices looked similarly fragile. However, with central bank stimulus set to stay for the foreseeable future and the supply and demand balance tightening, we contend that the copper market could be at a turning point.

Next page: Global copper demand