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Copper's rout will resume, bounce will be short-lived: analysts

Friday, 9 Aug 2013 | 3:47 AM ET
Macduff Everton | Image Bank | Getty Images

Copper prices, which are widely viewed as a barometer of global economic growth, surged to a two-month high this week of $7,215 per ton or roughly $3.60 a pound on Thursday.

But analysts say the uptick is only a short-term bounce for the battered down metal, which is around 28 percent off its early 2011 high of $10,000, and is set to resume its rout, with one seeing a fall of near 17 percent over the next month.

(Read More: Time to sell soft commodities too?)

"What's happened in the last few days is that the U.S. dollar has weakened substantially and we've seen some commodities come back because of that, in particular copper, (which) is a big beneficiary (of dollar weakness)," said Andrew Su, CEO at brokerage Compass Global Markets.

"But we still think copper is headed below $3 per pound (or $6,000 per ton) in the next month or so," he added.

The metal fell to a three-year low of $6,602 per ton in June, as investors fretted over the impact declining demand in China, which accounts for 40 percent of global copper demand, will have on the metal.

However, recently the metal has seen a bounce on better-than-expected Chinese imports, combined with weakness in the greenback.

(Read More: China data blitz points to stabilizing economy)

This week data showed that the world's second-largest economy imported 410,680 tons of copper in July, rising 12 percent from a year earlier to its highest level in 14 months. Overall trade imports spiked to 10.9 percent in July, well above expectations of 2.1 percent.

Meanwhile, the U.S. dollar declined around 1 percent against other major currencies this week, as weaker-than-expected jobs data and recent dovish comments from the Federal Reserve added to uncertainty over tapering expectations.

(Read More: Blame the Fed for the floundering dollar)

Trading commodities ahead of China data deluge
Andrew Su, CEO at Compass Global Markets discusses how investors should be playing metals and crude ahead of China's closely-watched inflation and industrial output data.

Su said he was unconvinced that the more positive data out of China this week was evidence enough to start getting bullish on the industrial metal.

"I'm a very big China data skeptic. There is a lot of volatility in that data, it's also very unreliable," he said.

Concerns over slowing growth in China have escalated recently, with many economic forecasters downgrading their growth forecasts.

(Read More: Now, China Watchers See Growth Below 7%)

"China has spent a lot of money without much return and that's catching up with it. We see the growth figures (at) 7 percent for the end of this year," added Su.

Other analysts told CNBC they remained bearish on the metal, despite the more recent bounce.

"We expected a little recovery before (copper) slides back to new lows. And we think nickel, aluminum and all the metals are going to remain soft," said Jay Richards, investment manager at GTL Capital Management.

Richards was also bearish on the outlook for Chinese growth this year.

"They (the government) think it's going to 7 percent, and they don't want to really promote that or suggest that. They want to believe that the big machine as it is, is still turning over, but it is slowing down," said Richards, referring to the inventory reduction.

Copper traded at $7,168 per ton in the mid-afternoon in Asia on Friday.

By CNBC's Katie Holliday: Follow her on Twitter @hollidaykatie

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