Copper prices rise in First Quarter 2012 - Looking out to the first quarter of 2012, however, some analysts believe that this slowdown in Chinese demand could reverse. copper's price to lift going into 2012, in line with this restocking event, there remain three key risks to the price of the metal.
Spot copper in Changjiang is down 0.2 percent at Rmb 54,900-55,200 so remains in a slight backwardation, while the LME/Shanghai arb window is closed by some $140/tonne basis the futures and is closed against the cash market too.
Three-month copper on the London Metal Exchange (LME) rose to $7,365.50 at 12:03 SA time, up from a close of $7,260 on Monday, although trading volumes have been tapering off ahead of the year-end holiday season.
Despite finally reaching an agreement with management, workers at Freeport McMoRan's giant Grasberg mine further delayed their return to work after a three month strike that the company says is costing it roughly 2m pounds of copper production daily.
While an extreme case, the situation at Grasberg, the world's second largest copper mine, is not the only setback facing the supply side of the global copper market.
As Macquarie's commodities research team pointed out last week, "Global copper mine output has continually disappointed forecasts and, more importantly, market needs over a number of years now, despite the strong financial incentive not only from high copper prices but also high by-product prices and a fall in processing fees paid by miners to smelters."
It adds that while there is no one consistently dominant cause of these losses, "the cumulative impact has been significant year-in and year-out since the middle of the last decade."
Despite the continual disappointment, it is worth pointing out, as UBS does in a recent report that global copper supply is forecast to lift 4.7% to 20.6Mt in 2012, driven by mine supply growth of +9.9% in Chile (6.0Mt), +11% from the US (1.3Mt), +10% from China (1.5Mt) and +13.7% from Zambia (0.96Mt).
But, the group adds, "unions are strongly incentivized to seek higher wages in 2012, given the high profits being generated among the producers" which it says could lead to further strikes in the sector and frustrated supply growth.
While not particularly novel, these supply constraints have served to help mute concerns on the demand side of the market that have seen prices of the red metal fall strongly as concerns have risen about slowing demand not only in the West but also in China.
Continued concerns about the state of the Euro zone and, in particular, the longer term impact of the crisis on the region's banking sector and its impact on liquidity have seen prices in many of the industrial metals decline, especially as demand from China has weakened.
As Standard Bank pointed out recently, "Access to credit relates to tight domestic monetary policy. But it also relates to the reduction in credit extension of especially European banks to many Chinese firms. Furthermore, the European problems are creating great uncertainty for businesses in China which is exacerbated by (a) a decline in export orders from Europe; and (b) commodities being diverted from Europe to China as European demand falter. As one metal importer put it "Chinese businesses are more concerned about Europe's debt problem than Europeans themselves".
According to UBS, "Of all the base metals, copper features the most robust, short-term fundamentals. For even with a subdued economic outlook, China is short copper. This was highlighted by how import flows jumped in recent months, following only a modest improvement in China's general credit liquidity."
The first of these is that the Chinese New Year may result in an easing of purchases in December and January. The second is the demand gap between private and government-led construction.
"Tao Wang, UBS China economist, believes government-led social housing programmes will offset trade weakness in private housing construction (private falls 15%; social housing floor-space lifts 50%). But we highlight a risk that the timing of the two trade shifts may be out sufficiently to create a short-term weakness in copper's demand and price," the bank writes.
And, finally, it points out that the narrowing of the SHFE:LME price differential since October has undermined the trader incentive to import metal, which may lead to a bearish build in metal inventories ex-China."
But, while these risks are significant, the bank believes that they are only likely to occur in the weeks leading up to the Chinese New Year. "Beyond that, we see a conventional seasonal restock (from Feb- 12) completely offsetting these risks, with copper's price strengthening throughout 1Q12.
Further out, however, the Bank, like Macquarie, is conscious of the supply-side situation but, remains more positive on the markets, ability to deliver new production.
"A genuine supply response to copper's recent, high price is underway, mainly out of Africa and South America. The DRC and Zambia are together expected to deliver new supply at a rate that will weigh on the price over the longer term."
Spot copper in Changjiang is down 0.2 percent at Rmb 54,900-55,200 so remains in a slight backwardation, while the LME/Shanghai arb window is closed by some $140/tonne basis the futures and is closed against the cash market too.
Three-month copper on the London Metal Exchange (LME) rose to $7,365.50 at 12:03 SA time, up from a close of $7,260 on Monday, although trading volumes have been tapering off ahead of the year-end holiday season.
Despite finally reaching an agreement with management, workers at Freeport McMoRan's giant Grasberg mine further delayed their return to work after a three month strike that the company says is costing it roughly 2m pounds of copper production daily.
While an extreme case, the situation at Grasberg, the world's second largest copper mine, is not the only setback facing the supply side of the global copper market.
As Macquarie's commodities research team pointed out last week, "Global copper mine output has continually disappointed forecasts and, more importantly, market needs over a number of years now, despite the strong financial incentive not only from high copper prices but also high by-product prices and a fall in processing fees paid by miners to smelters."
It adds that while there is no one consistently dominant cause of these losses, "the cumulative impact has been significant year-in and year-out since the middle of the last decade."
Despite the continual disappointment, it is worth pointing out, as UBS does in a recent report that global copper supply is forecast to lift 4.7% to 20.6Mt in 2012, driven by mine supply growth of +9.9% in Chile (6.0Mt), +11% from the US (1.3Mt), +10% from China (1.5Mt) and +13.7% from Zambia (0.96Mt).
But, the group adds, "unions are strongly incentivized to seek higher wages in 2012, given the high profits being generated among the producers" which it says could lead to further strikes in the sector and frustrated supply growth.
While not particularly novel, these supply constraints have served to help mute concerns on the demand side of the market that have seen prices of the red metal fall strongly as concerns have risen about slowing demand not only in the West but also in China.
Continued concerns about the state of the Euro zone and, in particular, the longer term impact of the crisis on the region's banking sector and its impact on liquidity have seen prices in many of the industrial metals decline, especially as demand from China has weakened.
As Standard Bank pointed out recently, "Access to credit relates to tight domestic monetary policy. But it also relates to the reduction in credit extension of especially European banks to many Chinese firms. Furthermore, the European problems are creating great uncertainty for businesses in China which is exacerbated by (a) a decline in export orders from Europe; and (b) commodities being diverted from Europe to China as European demand falter. As one metal importer put it "Chinese businesses are more concerned about Europe's debt problem than Europeans themselves".
According to UBS, "Of all the base metals, copper features the most robust, short-term fundamentals. For even with a subdued economic outlook, China is short copper. This was highlighted by how import flows jumped in recent months, following only a modest improvement in China's general credit liquidity."
The first of these is that the Chinese New Year may result in an easing of purchases in December and January. The second is the demand gap between private and government-led construction.
"Tao Wang, UBS China economist, believes government-led social housing programmes will offset trade weakness in private housing construction (private falls 15%; social housing floor-space lifts 50%). But we highlight a risk that the timing of the two trade shifts may be out sufficiently to create a short-term weakness in copper's demand and price," the bank writes.
And, finally, it points out that the narrowing of the SHFE:LME price differential since October has undermined the trader incentive to import metal, which may lead to a bearish build in metal inventories ex-China."
But, while these risks are significant, the bank believes that they are only likely to occur in the weeks leading up to the Chinese New Year. "Beyond that, we see a conventional seasonal restock (from Feb- 12) completely offsetting these risks, with copper's price strengthening throughout 1Q12.
Further out, however, the Bank, like Macquarie, is conscious of the supply-side situation but, remains more positive on the markets, ability to deliver new production.
"A genuine supply response to copper's recent, high price is underway, mainly out of Africa and South America. The DRC and Zambia are together expected to deliver new supply at a rate that will weigh on the price over the longer term."
LME copper had hit a yearly high of around $10,000/tonne in the first months of 2011 but has been on a downhill, declining over 20%. LME Copper prices trading around the $7500/tonne level, Tellurian Capital Management is betting on prices to increase to $9500/tonne in Q1, 2012.
Copper has been the main victim of market fears, way above energy and equities, but we should be getting past all that negativity. I doubt we will fall below the current range but there is a chance we could hit the upper end of the range, above $9,500, over the next four months as supply-demand issues turn favourable, Jean-Marc Bonnefous, managing partner at Tellurian Capital. Bonnefous also expressed his belief that Chinese consumption will remain robust since China's Copper imports are at their 17-month highs.
Freeport MacMoRan, one of the major copper producers in the world, is also bullish on copper and rubbishes any rumours of Chinese copper consumption slowing by arguing that copper consumption will be supported by the country's domestic economy even if exports slowdown.
Copper has been the main victim of market fears, way above energy and equities, but we should be getting past all that negativity. I doubt we will fall below the current range but there is a chance we could hit the upper end of the range, above $9,500, over the next four months as supply-demand issues turn favourable, Jean-Marc Bonnefous, managing partner at Tellurian Capital. Bonnefous also expressed his belief that Chinese consumption will remain robust since China's Copper imports are at their 17-month highs.
Freeport MacMoRan, one of the major copper producers in the world, is also bullish on copper and rubbishes any rumours of Chinese copper consumption slowing by arguing that copper consumption will be supported by the country's domestic economy even if exports slowdown.
Copper prices was at $8,098 a metric ton today on the London Metal Exchange, heading for the biggest weekly advance since January 2009. Prices reached a five-week high of $8,280 after European leaders yesterday bolstered their rescue fund to 1 trillion euros ($1.4 billion) and persuaded bondholders to take 50 percent losses on Greek debt. Copper traders and analysts are forecasting an end to the biggest weekly rally in more than two years on concern demand will slow in China while Europe’s lingering financial crisis limits growth.
While copper surged 13 percent this week as European leaders agreed to expand the region’s bailout fund, the metal is down more than 20 percent from a record on Feb. 15, the common definition of a bear market. Global output exceeded demand in the eight months through August, the World Bureau of Metal Statistics said on Oct. 19. Goldman Sachs Group Inc. and UBS AG cut their copper forecasts for 2012 this month, and economists surveyed by Bloomberg predict slower growth next year in Europe and China, the world’s largest metal user.
Copper output this year through August exceeded demand by 312,500 tons, up from 128,000 tons for 2010, according to the World Bureau of Metal Statistics, based in Ware, England.
The LME’s index of six industrial metals fell 15 percent this year, compared with a 3 percent gain for the Standard & Poor’s GSCI index of 24 commodities that’s been led by gasoil and gold. The MSCI All-Country World Index of equities slid 3.7 percent, and Treasuries returned 6.7 percent, a Bank of America Corp. index shows.
Goldman Sachs lowered its 2012 copper forecast by 18 percent to $8,750 a ton from $10,692, according to an Oct. 21 report from the New York-based bank. UBS, based in Zurich, on Oct. 14 reduced its 2012 estimate of copper futures on the Comex in New York by 5.4 percent to $3.50 a pound ($7,716 a ton) from $3.70.
Demand in China declined 5 percent in the first seven months of this year, the International Copper Study Group said in an Oct. 21 report. Imports of refined metal climbed in September to the highest since May 2010 as lower prices in London prompted traders to place orders. Inbound shipments climbed 17 percent to 275,499 tons last month from 235,509 tons in August, the General Administration of Customs said Oct. 24.
While copper surged 13 percent this week as European leaders agreed to expand the region’s bailout fund, the metal is down more than 20 percent from a record on Feb. 15, the common definition of a bear market. Global output exceeded demand in the eight months through August, the World Bureau of Metal Statistics said on Oct. 19. Goldman Sachs Group Inc. and UBS AG cut their copper forecasts for 2012 this month, and economists surveyed by Bloomberg predict slower growth next year in Europe and China, the world’s largest metal user.
Copper output this year through August exceeded demand by 312,500 tons, up from 128,000 tons for 2010, according to the World Bureau of Metal Statistics, based in Ware, England.
The LME’s index of six industrial metals fell 15 percent this year, compared with a 3 percent gain for the Standard & Poor’s GSCI index of 24 commodities that’s been led by gasoil and gold. The MSCI All-Country World Index of equities slid 3.7 percent, and Treasuries returned 6.7 percent, a Bank of America Corp. index shows.
Goldman Sachs lowered its 2012 copper forecast by 18 percent to $8,750 a ton from $10,692, according to an Oct. 21 report from the New York-based bank. UBS, based in Zurich, on Oct. 14 reduced its 2012 estimate of copper futures on the Comex in New York by 5.4 percent to $3.50 a pound ($7,716 a ton) from $3.70.
Demand in China declined 5 percent in the first seven months of this year, the International Copper Study Group said in an Oct. 21 report. Imports of refined metal climbed in September to the highest since May 2010 as lower prices in London prompted traders to place orders. Inbound shipments climbed 17 percent to 275,499 tons last month from 235,509 tons in August, the General Administration of Customs said Oct. 24.
