There’s a whiff of nervousness about the copper market.
Futures prices this week have fallen more than eight per cent in the biggest fall since early February and traders are wondering if the long rally since the second week of January has peaked and turned.
The big rally has been driven by active buying from China as it sought to replenish stocks run down in the great copper price surge in the middle months of last year. Prices were up around 24 per cent this year at last week’s peak.
Prices started rising after a nasty sell down in late December and the first week of January brought Chinese trade and merchant buyers back into the market when the price touched $US2.50/lb.
This drove prices to a high of just over $US3.60 a/lb last week, to within 44 USc of the all time high of $US4.04 a/lb reached on May 11, 2006.
After a rise in volatility on Monday and Tuesday, New York prices fell 3.3 per cent Wednesday on speculation that demand may slow in China, and renewed attention to another major factor, the continuing slowdown in the US housing industry which is a big user of the metal. Comex July copper futures fell 11.5 USc to $US3.4225/lb.
They fell a further11.6 USc Thursday in New York,to $US3.3065/lb. That was the biggest one-day percentage (3.4 per cent) fall since early February and the lowest closing price since April 2.
The trigger for the sharp fall was the publication of Chinese import figures for April which showed copper imports fell to 304,672 metric tons from a record 307,740 tons in March.
At the same time stocks monitored by the Shanghai Futures Exchange jumped 26 per cent last week to 85,269 tons, the highest in three years and some traders estimate that much of the copper bought by China in recent weeks has been going into stockpiles.
Analysts are now forecasting China might need up to 20 per cent less copper in the second half of 2007, meaning stocks will rise sharply, just at a time when production is finally cranking out more metal from mines like Escondida (owned by BHP Billiton and Rio Tinto).
US investment bank Morgan Stanley says its 2007 average price for the metal is $US3.05/lb or 11 per cent lower than current prices but above the Comex price average of $US3/lb so far in 2007.
On the LME on Wednesday three months metal fell $US150to $US7,610 a tonne. The metal rose to a record $US8,800 a tonne in May 2006.
Thursday LME prices fell sharply, down$US359, or 4.7 per cent, to $US7,251 a tonne. Before today, prices had gained 20 per cent this year.
Analysis of the Chinese import figures show continuing strong demand but the rise in Shanghai stocks has analysts worried because it is a trend that appeared towards the end of April.
Shanghai exchange copper stocks rose 14 per cent in April from March and another 26 per cent so far this month.
Shanghai exchange copper prices, compared to London and New York, are now implying a fall because the so-called Chinese premium has gone and there’s now a discount.
May copper shipments to China will be lower still than April reported in China’s May trade data (due next month).
The US housing industry’s blues are another problem.
It accounts for roughly five per cent of world copper demand, and the latest figures show a further decline in the number of new housing permits, a rise in starts though and industrial production.
But the stock of unsold houses is high (around nine months of new and old) and prices are continuing to fall.
Building permits fell 8.9 per cent in April to an annual rate of 1.429 million, the lowest level in almost a decade, according to the US Commerce Department. But builders unexpectedly lifted their start rate of new homes.
Analysts said that while surprising, it was more a reflection of builders needing to keep employees working and assets being used than any response to an upturn in demand.
………………….
The weakness in copper wasn’t just confined to that commodity.
Gold prices have slumped this week, as have silver prices. Both fell the most they have in two months Wednesday and the uptrend that seemed to have taken hold a month ago, seems to have been broken.
Selling funds, a turnaround in sentiment for the US dollar and a drop in oil prices, were cited by traders as the main factors.
June gold on Comex fell $US13.10 lower to $US661.50 an ounce after earlier hitting a session high of $US674.40.
Gold prices fell further Thursday on Comex, sliding another $US4.30 an ounce to $US657.20, the lowest close since early March.
Wednesday July silver fell 38.5 cents to $US12.93 an ounce, the lowest since March 14 and on Thursday the metal fell a further4.7 USc to $12.883 an ounce. The metal is now down 0.4 per cent this year.
The metal wasup more than 12 per cent at one stage. Gold is up by around three per cent, after being up more than double that a month or so ago.
Silver jumped 46 per cent in 2006 and gold 23 per cent and hit a 27 year high of $US730 a year ago this month.
Gold has gone as high as $US693 an ounce but hasn’t cracked the $US700 mark, despite numerous forecasts that it will.
