Despite the continuing global slump, copper is hot, well it’s warm compared to demand levels for oil, zinc, etc.
Only gold would come top copper, not so much as in price movements, but in the constant level of interest.
For a metal that’s supposedly coupled to the global economy, meaning it should be in slumpsville, it’s held up rather well, bouncing from around $US1.30 a pound to around $US1.60 in the past couple of months.
When reports of a possible boost to Chinese spending emerged on Wednesday (nothing actually was announced), the copper price rose 7% and more at times to end above $US1.67 a pound in New York.
It has come off a touch as traders realised the Chinese would not be revealing a second stimulus package.
But strong Chinese demand seems to be helping the metal’s price remain higher than it should, but for how long with complaints emerging in China of shortages of metal scrap.
China has done this at the start of the last two years; a bit of old fashioned buying in the dips and taking advantage of low prices.
But that was in boom years, now there’s a slump on and when China’s buying ends, will copper tank, like zinc and aluminium?
BHP Billiton and Rio Tinto, plus OZ Minerals and a host of other companies are wondering the same.
The copper market is clearly in surplus, as a result of weak demand globally.
Yet the cash price (currently 150c/lb) has held up well above the indicated cost/support of 108c/lb, according to research this week from Goldman Sachs JBWere.
"Stocks of the metal are at multi-year highs, and despite some falls in the past few weeks, there doesn’t seem to be any significant demand.
"We attribute this price resilience to aggressive Chinese buying. China’s cathode imports reached a record 211,000 tonnes in December 2008, eased back slightly in January 2009 (159,000 t) but, according to anecdotal evidence, surged again in February.
"While there are some encouraging signs to suggest that China’s copper consumption has picked up early in 2009, we believe that a major restocking by both industry and government is occurring.
"If Chinese restocking/purchasing tapers off in the coming months, there is clearly risk that the copper price could test cost support levels at 108c/lb and, temporarily, well below that in the manner already observed for zinc, nickel and aluminium.
"China’s copper scrap imports halved in January from December as the financial crisis crimped the ability of traders to get credit."
Meanwhile London metals consultancy, GFMS says:
"Copper prices have remained above $US3,000/tonne so far this year (on the LME) despite the steady build in inventories.
"Prices remain relatively close to the marginal costs of production unlike most of the other base metals, where prices reside between the 50th and 70th percentile.
"Although we recognise the supply constraints imposed by lower grades, and by on-going uncertainty in the African Copperbelt, we believe the dire demand conditions point to lower prices and under our base case scenario we do not believe the price levels seen in early March 2009 are sustainable.
"GFMS Metals Consulting expects that prices will test $2,600/tonne in 2009."
According to other London reports, the Chinese state stockpiling of copper may mean the withdrawal of about a quarter of the metal held in warehouses monitored by the London Metal Exchange.
Commodity hedge fund Ebullio Capital Management said this week that about 100,000 to 150,000 tonnes of LME-monitored copper will probably go to China in the next three months.
LME-tracked copper stockpiles have risen 56% so this year, peaking at a five-year high of 548,400 tons last week on February 25. They were 526,000 tonnes on Wednesday this week.
Bloomberg reported that Scotia Capital reckons Chinese copper buying has a “long way to go” and will be positive for demand.
"China’s State Reserve Bureau purchases have “just started” with total buying likely to be close to 800,000 metric tons in two years as long as prices remain low, an analyst with Scotia Capital, a unit of Toronto-based Bank of Nova Scotia, said in an e-mailed report. An expected spring recovery in construction would also bolster demand.
Copper has climbed 14% (now over 22%) this year partly on the demand from China, which is also taking advantage of low prices to boost stocks of aluminum, zinc, corn and cotton to bolster local prices after exports have dropped. Shanghai futures prices are up 27% as well.
China clearly isn’t looking for an upturn in output this year, more trying to keep the economy running at 2008 levels. Its buying will probably stop before the economy rebounds. Prices might tank.
