Copper Rises as Weak Investments Spur Supply Worries

Further signs of possible US monetary stimulus measures lifted demand for commodities, including copper, this week. This development, coupled with increased hopes for rate cuts in China, is allowing the red metal to gain ground as expectations of greater demand increase. Also giving the red metal a boost is the threat of tightening supply, as miners stall on investments in existing or new projects due to poor performance results. 

In the minutes from the July 31 to August 1 Federal Open Market Committee meeting, Fed policymakers said that more stimulus action to kickstart the still sluggish economy will be needed “fairly soon.” Some analysts are now forecasting Fed action as early as August 31, when Chairman Ben Bernanke is set to give a speech at the Federal Reserve of Kansas’ annual economic conference in Jackson Hole, Wyoming. This year, European Central Bank President Mario Draghi will be joining Bernanke in Wyoming alongside regional Federal Reserve Bank presidents and top US economic policymakers.

At the same time, expectations that Beijing will soon take action to stimulate growth are mounting, with the latest HSBC Flash China Manufacturing Purchasing Managers’ Index falling to a nine-month low of 47.8 in July. Chinese policymakers are expected to take action at the annual Congress of the Communist Party, which will be held in October.

Supply concerns for copper are mounting as recent lackluster performances by miners are weighing heavily on companies’ decisions to invest in existing and new projects, according to Commerzbank. If such hesitance results in a lack of supply, that will give further upward momentum to copper prices moving forward.

 In late afternoon trading, COMEX copper for September delivery is up 0.6 percent at $3.48 per pound.

Company news

BHP Billiton (ASX:BHP,NYSE:BHP,LSE:BLT) has backtracked on expansion plans due to poor earnings results. The mining giant reported that its profit for the first six months of the year plunged 35 percent from the same period a year ago to $72.2 billion, largely due to a slump in commodities prices amid slowing demand from China in particular. As a result, the Australian group said it will not approve any new major projects before June 2013. The company’s board was expected to vote on the final approval of the $20 billion expansion plan for Olympic Dam, which is the world’s fourth-largest copper deposit. The delay is expected to cost jobs and will likely tighten global supply of the red metal.

Kazakhstan’s biggest copper producer, Kazakhmys (LSE:KAZ), reported disappointing earnings results. Profit for the first six months of the year tumbled 67 percent from a year ago, to $121 million, while sales dropped 17 percent on year to $1.5 billion. The company has nonetheless maintained its full-year output forecast, projected to reach between 285,000 and 295,000 metric tons. In releasing its latest results, Kazakhmys stated that “[c]opper remains a product in good demand, fundamental to a wide range of applications and with restricted supply. We believe that the supply/demand balance will underpin the copper price in the medium term.”

Meanwhile, the ongoing dispute between Anglo American (LSE:AAL) and Codelco has finally come to an end, with the Chilean miner acquiring a 24.5 percent stake in Anglo American Sur for $1.7 billion in cash, having originally demanded a 49 percent share in the British group’s Chilean unit, which includes the Los Bronces mine. Japan’s Mitsui & Co. (TSE:8031), will have a 5 percent stake in the Chilean unit for $1.1 billion.

In the Philippines, Sagittarius Mines said it could delay production at its $5.9 billion Tampakan copper and gold project due to regulatory and security concerns. Sagittarius Mines is part of Xstrata (LSE:XTA).

Junior company news

Vancouver-based Columbus Gold (TSXV:CGT) has waived its right of first refusal to acquire an option on the Karapinar copper project in Turkey. The site is next to the Demirtepe project, and Columbus Gold has a conditional option under a deal with Empire Mining (TSXV:EPC).

“Columbus Gold understands that Empire has entered into a conditional option agreement with First Quantum Minerals over both Karapinar and Demirtepe. Although Columbus Gold has provided a tentative waiver of its right of first refusal respecting Karapinar, due to the inclusion of Demirtepe in the FQML deal, Empire is unable to complete this transaction without first terminating the Empire Agreement with Columbus Gold. This termination is contemplated by the Empire Agreement, and would require Empire to return a $2,000,000 (plus interest) deposit to Columbus Gold, and to pay a break fee,” Columbus stated.

Discovery Harbour Resources and partner Northern Shield Resources (TSXV:NRN) said drilling at their jointly-owned Wabassi project in Canada shows significant amounts of copper as well as zinc, and may well prove that the site could be one of Canada’s newest base metal districts.


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