By Leia Michele Toovey- Exclusive to Copper Investing News

Tweet

The arbitrage window that allows profitable imports of copper from the international market into China snapped closed on Thursday as the gap between Shanghai and London markets narrowed sharply. Half the available copper stock in Asia and 10 per cent of the material in Europe is earmarked for delivery as China’s stimulus purchases rocked market fundamentals.

The rush to get metal to China resulted in declines of LME stocks.  Since peaking at 548,000 tonnes in late February, stocks have fallen 4 per cent, while the amount of metal tagged for removal from LME warehouse (cancelled warrants), has ballooned to 12 per cent of the total stockpile. In the short term, more copper will be on its way to China, as evident by already booked cargo. On Wednesday, copper hit a three month high of $3,785.00 per tonne, on the LME.

On Thursday, copper’s gains were capped, LME Copper fell as gloomy economic data overshadowed depleting inventories.  Copper took a slight dip, falling $45 to $3,700, bit overall prices are still high. U.S. copper futures trading volumes shrunk as profit taking purchases dried up; recently, copper trading activity was high as stimulus related purchases from China had buyers worried that there would not be enough metal to go around. Now, traders are gun shy over the anticipation of US unemployment data.  Economists expect Friday’s payroll report to show the economy shed 648,000 jobs in February, the biggest monthly decline since 1949.

China’s copper consumption will rise in 2009, but growth will slow compared to 2008. This is according to Li Yihuang, president of Jiangxi Copper group.  He said the consumption growth should “very closely” track the country’s gross domestic product growth. China has been buying up commodities of which it is a net importer, and helping struggling domestic producers by buying metals that are in oversupply, such as aluminum and zinc.  China’s total investment into the stimulus thus far has been earmarked to be 3 per cent of GDP; frugal compared to the America’s 22 per cent.  The optimism behind this note is the fact that China’s moves are already boosting copper prices. Analysts predict that if Chinese growth is not sustained at the minimum anticipated level of 7.2 per cent, the country will put more funds into the stimulus.  Historically, China has shown to be uneasy with anything less than and 8.0 per cent growth rate; but is complacent with this year’s projection considering the global economic state.

 Zambia’s Standard Chartered Bank managing director believes the American and Chinese stimulus packages will increase demand for copper and prices should appreciate.  Mizinga Melu commented “standard Chartered Bank continues to believe that demand will be a key driver for copper demand in the months ahead. In the short-term, we forecast that demand for copper will remain fairly weak with prices averaging between 3,200 and 3,600 U.S. dollars per tonne. Experts say the year end closing price will be just above 3,700 dollars.”

Global miner Rio Tinto expects 2009 to be a rough year in terms of both prices and volumes for key commodities, the firm’s chief economist said on Wednesday. Vivek Tulpule said a pickup was possible in 2010, though people should not be blind to the risk of a prolonged slowdown. Rio Tinto’s major commodities are iron ore, aluminum and copper. “2009 will be a very rough year for both prices and volumes and probably also for construction. A lot of people I talk to in the mining industry are suffering a crisis of confidence, they are putting a lot of projects on hold,” said Tulpule. “Our view is that it will be a slow year or two.” Tulpule anticipates that benefits from the stimulus packages would begin to show about half-way through the year.

Comment

Tweet