By Leia Michele Toovey - Exclusive to Copper Investing News

The two major news pieces on the copper market early this week are: declining Chinese consumption, and Fannie and Freddie's bailout wrecking havoc on the US economy.

Top copper consumer China released a report showing copper consumption levels in June down 17% compared to May, and 24% compared to June 2007. This shrinking demand provided relief to copper prices. The bailout of Fannie and Freddie sent shockwaves through the global economy. The US dollar traded at record low compared to the Euro, and this in turn caused some buoyant affect on copper prices benchmarked against the USD.

Shrinking demand was the winner in the battle of copper prices this week, as markets mostly traded down. Shanghai copper dipped lower on Tuesday, with low trading volume and weak domestic demand weighing on prices. On the London Metal Exchange copper slipped on Tuesday as support from a weaker dollar was offset by fears of slowing Chinese demand. Copper was at $8,230 a tonne on Tuesday, against $8,285 at the close on Monday. On the Multi Commodity Exchange (MCX) of India, copper futures were up slightly. This was due to a weak Indian rupee extending its losses against the dollar, making all commodities benchmarked to foreign prices more expensive.

The rescue of Fannie and Freddie presents both good and bad news. The government's bail out has left Fannie and Freddie able to cope with a worst case scenario in mortgage defaults. Now, the speculation can end; this current economic situation is likely as bad as it will get. The time for economists to pour all their attention into the US recession can end, and now we will see how much of an impact America's economic tumble will have on the rest of the world.

Looking forward, Citigroup just released a statement indicating that copper was the top contender among the base metals for future growth. Citygroup's analysts admitted “We see it (copper) as best-positioned among base metals, with replacement costs more deterministic than the operating curve. The key to copper prices around the globe will be Chinese restocking, mine shortfalls and project stretch-outs.”

Despite worries of shrinking demand, Chile (the globe's biggest copper supplier) reports growing exploration levels. Chile tracks the amount of exploration in the region by the availability of equipment. Lately, according to Francisco Costabal, president of the Mining Council of Chile, at an interview celebrating the tenth anniversary of the mining council, drills have become few and far in between. He told press “This, in my opinion, is a sure sign that exploration activities in the region are alive and well.”

M&A News

Update from last weeks report on the Inmet (TSX.IMN) bid to take over Petaquilla copper (TSX.PTC). If you remember, Petaquilla felt that Inmet's offer was “opportunistic” and only 5.1 percent of shareholders were in support of the $2 (CDN) per share offer. Petaquilla commented to press this week that Inmet's Chief Operating Officer, Jochen Tilk, acknowledged that Inmet's $2-a-share offer was opportunistic, and the company is considering strategic alternatives. A special committee has been appointed to review the offer, when made, and to make recommendations to the board.

Russia's Metalloinvest ^[1] and Kazakhmys (LSE:KAZ), the world's 10th-largest copper producer, are in merger discussions. If a new company is formed, it would be relisted on the London Metal Exchange with a $38-$43 billion market capitalization. Alisher Usmanov (the majority shareholder in Metalloinvest who would become majority holder in the new company), has said that he is already looking into a merger with Norilsk Nickel to create a world-class metals giant. This news hit the London Stock Exchange, and shares in Kazakhmys climbed as high as 13.4 percent and ended the day at 12 percent above their opening price.

Kazakhmys is a publicly traded company; the merger offers Metalloinvest, Russia's largest iron ore producer, an alternative option for raising additional capital through an IPO. The prospective merger would enable Metalloinvest to develop more efficiently the eastern Siberian Udokan copper field, one of the world's biggest, with an estimated 20 million tonnes of copper reserves. The winner of the bid will be in a good position for a merger with Norilsk. The competition for the field includes Oleg Deripaska's Basic Element ^[2]. Kazakhmys, which has said it had the necessary capital and technologies to develop the field, was shut out of the auction when it was closed to foreign bidders. The winning bidder will be announced in September.