By Leia Michele Toovey- Exclusive to Copper Investing News

Copper futures retreated Tuesday, as concerns over Chinese growth and a rising greenback scared away risk adverse investors. Further exasperating the situation; the risk adverse investors appear to be flocking to the US dollar.

The ICE Futures US March dollar index is up 0.420 point to 78.765. As a dollar denominated commodity, when the dollar goes up copper becomes more expensive for holders in other currencies, and less international purchasers come to market. Benchmark copper on the London Metal Exchange ended at $7,395 a tonne from Monday’s $7,465 a tonne.

The metal fell to a 1-month low of $7,194 last Friday. Copper stocks in London Metal Exchange warehouses are currently at 533,575 tonnes, the highest level since early March 2009.

All signs seem to point to slowing economic growth in China.  The recent moves by Beijing to tighten monetary supply, including lifting the yield on central bank bills, and ordering banks to hold higher reserves show that the nation is taking steps to cool economic growth.  In fact, these measures have accomplished exactly that, the Shanghai Composite Index is down 2.42 per cent, to its lowest level in almost three months.

China is especially critical to the copper market since the country is the world’s No. 1 consumer of the metal.  Traders and analyst claim that the country’s stimulus plans are directly responsible for lifting the red metal’s price during 2009, when much of the Western world was in a recession.

In the United States, the metal’s number two consumer, concern gripped the banking sector as president Barack Obama threatened to fight Wall Street banks with a proposal to limit financial risk taking.

Company News

Freeport-McMoRan Copper and Gold Inc, the world’s largest public copper producer, is expecting declining sales of copper due to lower ore grades and increasing production costs at its Grasberg mine in Indonesia and the El Abra mine in Chile. The Grasberg mine contains the world’s largest recoverable reserves of copper and the biggest single gold reserve.

Current estimates have the company witnessing a 7.3 per cent decline in copper production, with estimate output in 2010 to equal 3.8 million pounds of copper. The company sold 4.07 billion pounds of copper in 2008. Freeport has a new project coming online in March 2010; Freeport is investing $1.8 billion into its Tenke Fungurume project in Democratic Republic of Congo, which is set to produce 250 million pounds of copper and 18 million pounds of cobalt a year.

Freeport anticipates its profit per pound of produced copper will be lower in 2010 than seen in 2009 due to higher prices for fuel, steel and wages, particularly in South America.  Copper production costs are anticipated to hit 86 cents a pound this year, up from 55 cents in 2009.

Aluminum Corp of China (Chinalco) is studying worldwide copper resources in order to identify the best investment opportunities, according to Lu Youqing, the company’s vice president, citing copper as Chinalco’s “next main development target.” Chinalco also said yesterday that it had posted a profit in the second half of the year, compared with a loss in the first half of 2009.

Copper prices have surged by 130 per cent since the start of 2009, the positive outlook for copper prices prompted Chinalco to establish a subsidiary last year, China Copper Company. The unit now has about 60 billion Yuan of assets.

After a volatile day, US Copper closed up 2 per cent on Tuesday;  as optimism about demand from China combined with confidence from international investors to compensate for a rising greenback and increasing stockpiles.

COMEX March copper closed up 2.4 per cent to settle at $3.4470 per lb. In India, the most-traded February contract was 0.01 per cent higher at Rs 344.20 per kg, after hitting an intra-day high of Rs 347.6.  LME copper for three-month delivery hit $7,525 per tonne, up $25 from Monday’s close.

Worries about demand from China have been weighing on copper prices for the past week. Last Monday, China’s central bank said it would curb a record expansion in lending and sold three-month bills at a higher interest rate. This week, the bank lifted auction yield on one-year bills for a second week in a row.  Unlike last weeks’ response, this week investors had mixed opinions on the long-term implications the move would have on demand for metals.  All eyes are looking ahead to Thursday’s release of detailed Chinese trade data and industrial output figures.

A strengthening greenback made copper less attractive for non-US investors. The dollar index, a gauge of the greenback’s performance against six other major currencies, gained 0.52 per cent to 77.468.  A stronger US currency makes dollar-denominated metals less attractive for non-US investors.

Copper stockpiles continued to rise, in LME warehouse stocks rose by 3,300 tonnes on Tuesday, bringing total levels to an 11-month peak at 526,750 tonnes. COMEX copper stocks climbed 300 short tonnes to 100,217 short tonnes as of Friday.

Company News

The new president of Chile, Sebastian Pinera plans major changes for Chile’s state copper giant Codelco. Pinera will keep the company state-owned, while at the same time, he plans to bring in fresh capital and boost productivity.   This is a change in plans from the start of Pinera’s election campaign when he proposed selling up to 20 per cent of Codelco.  Now, Pinera wants fresh capital to come from the state, for the retention of profits.

Capital will be used to increase exploration, extract known reserves and improve technology.

After seven years of delays, Kennecott Eagle Minerals Company a subsidiary of Rio Tinto has received the go ahead to begin construction of a nickel and copper mine in Michigan. The delay was over concerns about the environmental impact of the mine, as well as disturbance to nearby sacred site. Kennecott is also planning to refurbish a former iron ore mill in nearby Humboldt (to support the activities of the new mine).

After long negotiations, the world’s largest mining company, BHP Billiton Ltd, won a 38 per cent cut in 2010 copper processing fees from some major smelters in Japan and China.  Offering cuts are Mitsubishi Materials Corp, Pan Pacific Copper Co, and Jiangxi Copper Co, China’s biggest producer of the metal. Copper prices have risen nearly 140 per cent over the past year, as China’s imports of the red metal rose to a record.

Typically, when the volume of material moved increases, smelters decrease the amount they charge to turn concentrate into metal in efforts to compete for business.  Last month, Freeport-McMoRan Copper & Gold Inc also revised processing prices with the smelters.

Copper prices have enjoyed an 80 per cent rally this year- on the back of Chinese State Reserve Bureau (SRB) purchases. Now, signs are pointing to the finality of those purchases. Inventories monitored by the London Metal Exchange posted their first back-to-back weekly gains since February, increasing 8.6 per cent from an eight-month low, and at the same time U.S. copper-scrap exporters have reported declining purchases from the Asian country.

If China’s purchases grind to a halt, so will the red metal’s rally. So far, copper’s ascent has been a China only story- that has overshadowed weak demand elsewhere in the world. The metal for delivery in three months was trading at $5,470 a tonne on July 28th. On the New York Mercantile Exchange’s Comex division, copper futures climbed to a nine-month high of $2.579 a pound.

China may exit the market simply due to the fact that the government does not forsee being able to use up current inventories in the near future. Imports may have exceeded manufacturing demand by as much as 1.3 million tons in the first half. Refined copper imports by the Chinese more than doubled to 1.78 million metric tonnes in the first half of the year- reaching a monthly record of 378,943 tonnes in June, customs data show. “Excessive imports mean much of the purchased metal was just stored, raising the risk that they may sell it back to the market and depress prices,” said Koichi Kaku, the general manager of the copper and precious metals sales department at Tokyo-based Sumitomo Metal Mining.

Another reason why China may halt purchases is the current price of copper. Copper’s rebound, of course, is a direct result of Chinese buying in the first place. On June 29^th, an official at the National Development and Reform Commission, the top economic planner, claimed that China may not continue buying industrial metals for strategic reserves after prices rebounded.

Some analysts and producers remain bullish. Freeport-McMoRan Copper & Gold Inc sees a tighter global supply base for copper and strong demand from China and the developing world favoring the industrial metal’s longer-term outlook. “From a market standpoint, the recent upward movement in copper prices reflects some important fundamentals about this business that are going to be important for the long run, and that is the requirements for copper in China and the developing world,” Chief Executive Officer Richard Adkerson told analysts on a conference call on Tuesday. New York based investment powerhouse Goldman Sachs was also optimistic on copper’s future- at least on July 16^th. On that day, GS distributed a note saying that copper is poised to benefit from growing demand from emerging markets.

When it comes to betting on copper’s future, Freeport’s CEO is going to put his money where his mouth is. Adkerson plans to resume some planned expansion efforts. “We are looking at opportunities that we may have to increase some volumes without spending expansion-type capital,” he said. He sees a huge opportunity at the Henderson molybdenum deposit in Colorado. “The Henderson mine is a very efficient mine … it would be a mine we could scale back up,” he said. Adkerson said construction at the company’s Tenke Fungurume copper and cobalt project in the Democratic Republic of the Congo (DRC) was essentially complete, with 26 million pounds of sales in the second quarter.

“By the second half of the year, all of our production costs will be flowing in and we will be up to design capacity,” he said. “At design capacity and with $10 cobalt, we are looking at unit costs being less than 50 cents a lb.” Commenting on the future of copper prices, and his company, Adkerson added “In the context of a weak environment in the U.S. and Western world, inventories are very low, the industry has and continues to face issues with new projects maintaining supplies out of existing mines, so the supply situation for copper is very well situated for miners,” he said. “All of this indicates a very bright future in our view for copper and we’re committed to being a very strong supplier of copper with great growth projects as we go forward.”

Vibhu Ratandhara, an analyst with Bonanza Commodity Services, stated:

Traders are booking profit after yesterday’s rally.

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Somnath Dey, in-charge metals and energy research with Religare Commodities, stated:

Copper’s rise is due of rallying equity markets.

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T. Gnanansekar, director with Commtrendz Research in Mumbai, stated:

The downward trend would continue in copper on the back of doubts of overall demand.

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