For years, a copper replica of Wall Street’s Charging Bull sculpture stood in the lobby at the London offices of Red Kite Group, one of the biggest metals hedge funds. With prices near six-year lows, a new statue faces it, an even bigger roaring bear.

The bear, made of copper so shiny you can see your reflection, epitomizes the negativity in a market that’s seen prices cut in half since 2011. Whether a turnaround is imminent or more gloom lies ahead will dominate conversation at the LME Week in London, the annual gathering of miners, traders and buyers that starts on Monday.

Glencore Plc last week became the flag-bearer for a revival, promising to cut zinc production by a third and sparking one of the biggest rallies in metals this year. Pessimists such as Goldman Sachs Group Inc. say the gains will be fleeting as China’s economy shifts away from a metals-intensive, investment-led growth model.

"China is the central issue," David Lilley, the co-founder of Red Kite, which oversees $2 billion, said in an interview. "However, it is noteworthy that the current conditions in the copper market are actually considerably better than most market commentary. Demand has been disappointing, but supply has also been worse than expected.”

David Fuller's view

Supply is always the key variable in commodity markets because it can and does change dramatically from time to time.  In contrast, demand for resources is less volatile and tends to change slowly.

If leading miners maintain recent production levels, let along increase them in a war of attrition with each other, then Goldman Sachs’ commodity forecasts will prove to be prescient.  Meanwhile, the trading firms appear to be backing bearish forecasts with short positions more often than not.  These shorts can help to validate the bearish forecasts, although this becomes a dangerous game when production falls to deficits relative to consumption.      

At this stage of the price cycle for metals, it could make sense for miners which still have reasonably strong balance sheets to buy and hold depressed metals, rather than produce more of them.  This would bring forward the deficit of production relative to consumption of metals, and also squeeze short positions causing market prices to rise sharply.  The only drawback to a well timed strategy of this sort would be labour relations with miners and their unions.  However, mining companies could resolve this problem by temporarily withholding new production from the markets.