Copper Falters as Eyes on China

Dashed hopes for further Fed easing and wariness of yet more weak economic data from China have cause a drop in copper gains this week as the bears outpace the bulls. Also weighing down the red metal are rate cuts by South Korea and Brazil which have led investors to focus on the near-term risks rather than longer-term benefits of monetary easing. 

Markets will be focused China’s second quarter GDP results being released on Friday morning. Analysts are largely expecting the number to be weak as  manufacturing and retail sales were sluggish for the quarter, boding ill for the global copper market. It is clear that the world’s biggest copper consuming nation’s appetite for the red metal is waning as earlier in the week, Beijing reported copper arrivals falling 17.5 percent in June from the previous month to 346,223 metric tons.  The silver lining in a further slide in China’s economy, though, is expectations that Beijing will take further steps to jump-start growth including another round of rate cuts which would in turn boost demand for copper and other industrial materials.

In the meantime, it does not appear that other countries will pick up China’s slack. Minutes from the United States Federal Reserve’s June policy meeting made clear that the possibility of further quantitative easing, which many investors had hoped would stimulate US growth, was not even under consideration. Meanwhile, South Korea’s decision to cut interest rates for the first time in over three years increased market anxiety about how Asian policymakers’ concern about the impact of Europe’s ongoing debt crisis and other risks on the global economy. Brazil also cut its rates to a historic low, heightening fears about robust emerging markets being affected by the economic downturn in industrialized countries.

The steady decline in global copper prices in recent months has already affected Chile’s economic outlook, as over half of the country’s exports depends on the red metal. The government lowered its copper price projection for the year to $3.55 a pound, down from its previous estimate of $3.70. As a result, the country’s GDP is pegged to grow by 4.7 percent this year as opposed to 5.0 percent as initially anticipated.

In late afternoon trade Thursday, Comex copper for September delivery is 0.8 percent lower at $3.42 a pound.

Company news

Codelco placed its largest debt issuance thus far with $2 billion in bonds. The world’s biggest copper producer placed $750 million worth of 30-year bonds at a 4.390 percent yield, and $1.25 billion of 10-year bonds at a yield of 3.157 percent. CEO Thomas Keller stated that “”the issue was oversubscribed over five times and attracted orders of over 300 investors in the Americas, Europe, Asia and the Middle East.” The proceeds are expected to help the state mining group to refinance its debts and fund its investment plans for 2013. Meanwhile, Fitch Ratings assigned an A plus rating to the proposed notes, while Moody’s assigned a rating of A1, and Standard and Poor’s assigned an A rating.

A ban on developing the Tampakan copper and gold mine in the Philippines is likely to remain according to South Cotabato Governor Arthur Pingoy, Reuters reported. The Sagittarius mine is being developed jointly by Xstrata (LSE:XTA) and Indophil Resources (ASX:IRN). The $5.9 billion project was expected to begin production by 2016, but a ban on open-pit mining has put plans on hold. Earlier this week, the Filipino government said it will not award new mining permits until Congress approves measures to enforce more payouts from mine operators as the nation seeks to increase mining revenue.

In Chile, Vancouver-based Teck Resources (NYSE:TCK) withdrew its social  and environmental impact assessment for its Quebrada Blanca project, stating that it is “in the process of reviewing comments by the regulators, after which the application will be resubmitted.”  The project is pegged to cost $5.6 billion and production is expected to begin in 2016.

India’s state-owned Hindustan Copper, together with the National Aluminum Company (NALCO) and the Steel Authority of India (SAIL) will be bidding for copper as well as gold deposits in Afghanistan later this month, according to The Hindu. The daily reported that two private Indian companies, namely Monnet Ispat & Energy and Jindal Steel & Power have also been shortlisted by the Afghan government to develop copper and gold mines in the country.

Market players continue to closely follow the ongoing saga of Glencore International’s (LSE:GLEN) bid for Xstrata which would create not only one of the world’s largest copper producers, but also the fourth-larest mining group in the world. Shareholders of both companies will vote September 7 on the proposed $26 billion takeover bid.

Meanwhile, Bloomberg reported that Perth-based Sandfire Resources NL (ASX:SFR) is currently the cheapest takeover target among copper producers in Asia. The company, which produces high quality ore, is now shipping copper from its DeGrussa mine and is currently trading at 5.6 times estimated earnings for the current fiscal year.

In Zambia, the Environmental Management Agency said that privately held China Copper Mines will be investing $100 million in a copper project that would produce about 600 tonnes of copper cathodes a year, according to Reuters. The project will develop open copper pits in the Copperbelt Province to produce copper cathodes from around five mineral waste dumps.

Junior company news

Eurasian Minerals (TSXV:EMX) is exploring for copper and gold in Sweden together with Antofagasta Minerals. Antofagasta will be able to earn up to 70 percent interest in either the Kiruna South designated project or Norrmyran designated projected through a combination of cash payments and work commitments. The two companies are also conducting copper exploration in Sweden under a Strategic Regional Alliance Agreement.

Bellhaven Copper & Gold (TSXV:BHV) increased its mineral resource estimates for its La Mina project in Colombia. The company’s current inferred resource at the site is for 419 million pounds of copper contained in 80 million tonnes.

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