Copper Weaker, but Japan Growth, US Uptick Give Hope

While the downside risks to copper demand from the Eurozone’s ongoing turmoil are evident, the time to focus more on its upside potential may have arrived. As US industrial output recovers and Japan’s economy rebounds, the price of copper is only slightly lower and has the potential to go up.

The fact that the world’s third-largest economy is showing signs of strengthening is certainly a buy factor for copper. Japan’s first quarter GDP expanded by an annual rate of 4.1 percent; consumers were eager to spend more compared to the same period a year ago, when a devastating earthquake and subsequent nuclear fallout rattled the country in March 2011.

Base metals demand in the US is stronger too as US industrial output rose 1.1 percent in April, marking its biggest gain since December 2010. Moreover, housing starts in the US rose 2.6 percent to an annual rate of 717,000 in April, which exceeded analysts’ expectations.

There is also growing expectation that the Federal Reserve will encourage further monetary easing should the US economy lose momentum, according to comments from several Federal Open Market Committee members this week. That could bolster capital expenditure and drive up demand for the red metal.

Yet worries about Europe’s financial future and its impact on the global economy cannot be ignored. As British Prime Minister David Cameron declared, it is now time for the 17 countries of the Eurozone “to make up or it is looking at a potential break-up.” The fact that Greece will be holding another election on June 17, at which voters could insist on the country leaving the currency union, may bode well for the euro in the long run as some uncertainty would be lifted.

Britain is bucking the European trend, as car production rose 9.3 percent in April to 94,352 units and vehicles for export rose almost ten percent from a year ago.

One new downside risk is the US decision to place preliminary duties of 31.22 percent on Chinese solar import, which may impact copper demand moving forward.

In late afternoon trade Thursday, COMEX copper for July delivery is 0.1 percent weaker at $3.47 a pound.

Company news

Chile’s Antofagasta (LSE:ANTO) reported first quarter earnings surging 35 percent from a year ago to $1.1 billion, with revenue rising 39 percent to $1.76 billion as the company increased copper output. Production of the red metal rose 26 percent from a year ago to 162,900 tons on the back of increased output from its Esperanza mine, while sales reached 158,700 tons.

Ivanhoe Mines (NYSE:IVN,TSX:IVN) reported a narrowing of its first quarter loss to $80.6 million, down from a net loss of $492.5 million a year ago. The company, which is now majority owned by Rio Tinto (ASX:RIO), reported too that construction of the Oyu Tolgoi mine in Mongolia remains on track, with commercial output slated to begin by the first half of 2013.

BHP Billiton (ASX:BHP,NYSE:BHP) is backing away from plans to spend about $80 billion on new projects by 2015 due to the current economic climate. BHP Chairman Jacques Nasser told reporters on the sidelines of a business conference in Sydney that the company has been rethinking the planned investments, but did not elaborate further. BHP had been slated to invest heavily in Chile’s Escondida copper mine, among other projects.

Xstrata (LSE:XTA) may miss its production target at its $5.9 billion Tampakan copper and gold project in the Philippines amid opposition from the Catholic Church, according to Bloomberg. The company had expected to extract about $60 billion of minerals from the site starting in 2016, but it has been unable to secure an environmental compliance certificate as local government officials take their cues from the church, which has joined forces with environmental groups against open-pit mining.

Junior company news

A team of independent geologists and consultants will be visiting the Moonlight and New York Canyon properties of Canyon Copper (TSXV:CNC) to consider the copper oxide potential of the Longshot Ridge and Moonlight systems in Nevada. Canyon Copper said the visits will allow it to review the exploration plans for each property.

Vancouver-based Excelsior Mining‘s (TSXV:MIN) Gunnison copper project in Southern Arizona is heading towards a pre-feasibility study, targeted for the end of this year. The site has a total indicated mineral resource of 3.21 billion pounds of oxide copper and an inferred resource of 0.88 billion pounds of oxide copper.

Fortune Minerals (OTCQX:FTMDF) began trading on the OTC market this week. President and CEO Robin Goad stated that “the significant activities on Fortune’s key development assets has resulted in increased demand for a U.S. dollar-denominated trading venue. We chose the OTCQX as it offered a cost effective means to access U.S. investors by leveraging our existing disclosure and regulatory compliance in Canada.”

 

Securities Disclosure: I, Shihoko Goto, hold no direct investment interest in any company mentioned in this article.