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Gold/Mining/Energy : Copper - analysis
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From: DaveAu11/27/2006 3:34:51 PM
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Interesting comments from UBS report dated today that was posted by Bill Cara (I added bolding to last part):


Mid-cap copper names, Aur, First Quantum and Inmet, saw gains of greater than
10% this week on the back of the FCX/PD merger. Some investors saw the deal as
bullish on the copper price and increased potential for copper consolidation. On the
other hand, the deal may have a longer term negative read through for the copper
price. FCX and PD stated the combined company's project pipeline includes the
Tenke Funfurume copper/cobalt project in the DRC, which they expect will begin
producing by 2009. With Tenke now potentially more likely to be developed by
2009-2010, the copper price may struggle to hold current levels longer term. This
project, combined with other projects in the copper belt, and the potential
development of Ivanhoe’s Oyu Tolgoi project, could ultimately add more than 10%
to global copper supply

...

Physical demand for copper in China is beginning to show signs of life and
traders/merchants are now able to make profits on imports of cathode. Refined
copper consumption growth is reported to be robust and consumers are finding the
domestic spot market has tightened largely due to the absence of sales from the
government's stockpile administrators the Strategic Reserves Bureau (SRB).
Another factor is that Chilean imports of cathode into China are duty-free following
a trade agreement signed between the two countries in October. This means that
imports from Chile are not subject to a 2% tariff but are still subject to a local VAT
rate of 17%. Although some small parcels of metal are entering the country dutyfree
we understand that this policy change is not fully effective until January 2007.
The SHFE/LME arbitrage shown in the chart has been adjusted to take this change
into account and at the current exchange rate between the RMB and the dollar,
imports have become viable again. We would expect to see a pick-up in refined
imports over coming months to meet still strong demand levels.
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