(MB) - Technical trading drives LME copper
2002-01-25 17:02 (New York)
January 25 (Metal Bulletin) - News that Zambia's biggest copper
producer, Konkola Copper Mines (KCM), could close within a year
helped fuel a small rise in copper on the LME on January 24.
Anglo American, which holds a majority interest in the project
through its Zambian copper division ZCI, said KCM is expected
to close in twelve months unless substantial additional
financing becomes available or the assets are sold as a going
concern. Anglo blames low copper prices for its decision this
week to withdraw further funding from the venture in the
Zambian Copperbelt.
In addition to the news of KCM's possible closure, copper's
upward trend and upbeat news on the US economy were significant
factors too in boosting the LME price, according to traders.
In the absence of any fundamental news copper's recent
movements have been technically driven.
"Fundamentally we are still at sea. The market has really
boiled down to range trading or technical trading," said a
broker. "There is speculative interest in the market but it is
chart-driven rather than fundamentally-driven," said another
trader.
Three-months LME copper closed at above two key chart points on
January 24 at $1,560 per tonne. With a "bullish chart pattern"
in place, copper traded up to $1,566 after the kerb ended,
before drifting back to $1,55 per tonne the following morning
but recovering to high $1,560s in the afternoon trading on
January 25.
An upbeat speech by US Federal Reserve chairman Alan Greenspan
on January 24 helped create some speculative interest in
copper. "We've had news of supply cuts [like KCM] before; the
market responds better to news from the demand side," said a
trader.
Analysis of recent macroeconomic data by one LME ring dealer's
analyst suggested that the global economy was nearing the end
of its trough. "Funds are buying metal again in anticipation of
a recovery in the third or even the second quarter," said the
ring dealer.
Meanwhile, shortage of copper concentrates following last
year's production cutbacks is being reflected in lower
treatment and refining charges in the most recently concluded
term contracts.
The Ok Tedi copper mine in Papua New Guinea has settled its
2002 benchmark concentrates contracts with Japanese smelters at
a treatment charge of $70 per tonne and a refining charge of 7
cents per lb.
The settlements, reached late last week, mirror those secured
by PT Freeport Indonesia and reflect an extremely tight copper
concs market. Ok Tedi also claims to be securing substantially
lower TC/RCs from buyers in the spot market and expects this
trend to continue for several more months at least.
Like PT Freeport, Ok Tedi trimmed $2 from its gold refining
charge, from $6 to $4 per oz, and thus calculates its overall
TC/RC for 2002 at a level of around $68-69/68-69 cents. "The
copper concentrates market is fairly tight for the year 2002
and the settlements reflect this increased tightness versus
2001," said an Ok Tedi official.
In the spot market, Ok Tedi recently concluded a sale of around
10,000 tonnes at a TC/RC of $48/48 cents. Only limited
availability of spot material precludes Ok Tedi from doing more
business at this level, said the official, although he added
that the mine may be able to sell another 10,000 tonnes on the
spot market within the coming months. "I anticipate that these
price levels will go on for many months," he said.
Production at Ok Tedi will stay steady this year, he added. The
mine lost around 1,800 tonnes of concs production last year
following a blockade by disgruntled workers but operations were
not adversely affected.
The Japanese Smelter Pool and copper miner PT Freeport
Indonesia had settled their 2002 benchmark concentrates
contracts a week earlier also at a treatment charge of $70 per
tonne and a refining charge of 7.0 cents per lb.
The settlement was reached later in the year than usual because
of uncertainty about the world copper market and prices in
2002, and the ongoing questions about mine and smelter
cutbacks.
Freeport has been able to reduce the charges from last year's
settlement of $78/7.8 cents because of the significant
tightness that is forecast in the copper concs market this
year. In addition, the JSP has conceded to Freeport on the
refining charge for gold, which has been reduced from $6 to $4
per oz. Other miners and traders reckon this is equivalent to
an overall TC/RC of $68-69/6.8-6.9 cents. Price participation
has been capped at 1.6 cents per lb.
Freeport also agreed terms with Umicore's Pirdop smelter in
Bulgaria at the same price, $70/7.0 cents.
Negotiations on charges between the JSP and leading South
American miner Escondida are expected to begin soon, but could
be protracted by the same issues that stalled the Freeport
talks. Also, South American mines typically produce copper
concs with less gold, for which there is demonstrably greater
demand and a premium of $4-5/0.4-0.5 cents. Such miners will be
looking to conclude at lower levels around $65/6.5 cents. "We
will never accept $70/7.0 cents," said a miner, adding "it will
still take some weeks to get benchmark terms for low-gold
concs".
The JSP is unlikely to take a holiday from its suppliers, but
if miners are not able to negotiate favourable terms they would
be more likely to take their chances in the spot market.
A spot deal last week for Alumbrera concs was reported to have
been struck at $55/5.5 cents.
European copper cathode traders have had a satisfactory start
to the year and some are cautiously optimistic for 2002.
Cathode sales were moribund for most of 2001, with traders
frequently describing the market as "absolutely dead". But
barely a two weeks into the new year, their tone seems to have
changed.
"Enquiries from the trade are okay," said a cathode trader.
"It's nothing to get excited about, but it has been quite good.
Sentiment is slowly improving," said another. However, the
optimism was not universal. A major trader said there was "very
little going, consumer liquidation of stock is still
happening". A European copper producer also warned that he had
not registered any improvement in copper demand. "We are not
feeling comfortable today," he said.
One trader put the small revival down to consumers who "might
just be restocking". Another said that some consumers, after
being long of material in 2001, are now short and are having to
do some covering in the spot market.
Premiums for grade A material are virtually unchanged at around
$25 per tonne over LME cif Rotterdam. Delays to deliveries of
standard grade material from Russia has done a little to help
premiums for standard grade cathodes, which are flat to $10 per
tonne over LME cif Rotterdam. Traders blamed the delayed
shipments on greater domestic sales in Russia and adverse
winter weather conditions.
The collapse of Enron late last year is thought to be a minor
factor in the recuperation of the cathode trade. Enron was one
of the biggest physical copper players, with one trader
estimating their annual turnover at "about 1m tonnes".
In theory, their business should have fallen into the hands of
other trading houses, and traders did attribute an upturn in
the number of trading opportunities and a small increase in
spot sales to Enron's downfall. However, the effect was not
dramatic.
Several factors mitigated the effect on the market. Enron's
demise occurred so close to the end of the year that consumers,
who were already oversupplied in a terrible year for copper
demand, were not concerned about sourcing material from other
traders.
At the same time, copper producers have increased their efforts
to reach consumers directly and reduce the influence of traders
on the market. A source close to Chilean producer Codelco
estimated that the Chilean company's sales directly to
consumers had increased from around 80% to 85% of production
over the last year. "Others will follow Codelco's lead," warned
a trader.
Meanwhile, copper consumers are shying away from booking large
quantities of cathode under long-term contracts in 2002.
"Buyers are worried about their own markets," explained a
trader. Consumers have delayed signing contracts while they
develop a clearer picture of the year ahead.
"Usually the bulk of contracts are booked before Christmas, but
we still have some big contracts to be booked. Some important
buyers are waiting another week to decide," said a European
copper producer.
But traders were not too despondent. The unwillingness to
commit to big tonnages will benefit trading houses if the
economy recovers, as consumers will have to buy cathode on the
spot market.
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