Morgan Stanley analysts said that they are surprised by copper’s under performance against the base metals complex so far this year, but suggest the red metal could benefit more than most metals if authorities in key consumer China move to stimulate the economy.
“Physical availability in the country is tightening, as inventories fall and SHFE (Shanghai Futures Exchange) structure enters its steepest backwardation since 2Q11,” said Morgan Stanley via Kitco News.
This trend is the result of power grid investment, which accounts for 47% of China’s copper demand, being up 13% year-on-year for the 2014 so far, pointing to the government’s goal of lifting investment 20% above the record spending in 2013.
“Scrap availability also remains tight, with March marking the 14th consecutive (year-on-year) decline in scrap imports. As copper’s under performance results from investor concerns over China, it could be the prime beneficiary if policymakers respond to worsening macro data, as we expect,” Morgan Stanley concluded.