Copper price may zoom to $7,500/t by 2010
2009-10-04 15:30:00
commodityonline.com
LONDON (Commodity Online): China remains important in determining copper's price direction, but its influence is starting to become diluted, with the metal market's attention now a bit more focused on the shape of Western economic recovery.
The decline in Chinese imports of unwrought copper and copper products in July and August symbolises this changed sentiment. After successive monthly increases since October 2008 (apart from a minor blip in January 2009), July and August saw a reversal of that trend.
China's copper imports in August were 325,098t, down by 20% from July, and 32% lower than June. This was the sharpest two-month decline in Chinese copper imports since records began in 1993. Copper scrap imports also fell in August, to 390,000t, from 448,258t in July.
We have been forecasting such a decline and thus are not too surprised, given that China's copper imports have been so very strong since September 2008. What is surprising however has been the failure of the LME copper price to fall on this slackening of the pace of China's imports.
Given that refined copper stocks on the Shanghai Futures Exchange are up to a five-year high of 104,248t in the week ending 18th September, then the persistently elevated LME price becomes even more difficult to justify on purely fundamental terms. Chinese refined copper production rose 15.4% in August (v. July 2009), to a record 364,900t, and the rising local stocks and weaker imports suggest demand is finding it hard to keep up.
There is more to come: China's production of copper concentrate was up 11%, to 94,300t, in August, implying a further ramp-up in domestic mine supply, offering up the distinct possibility that refined copper imports could again fall in September. It's conceivable that the LME copper price held its ground in the face of such negative data from China because other factor's not least a weaker dollar and stronger than expected US consumer sentiment - were powerful countervailing influences.
Moreover, there are prospects of supply disruption in the months ahead due to the threat of strikes in Canada, Chile, Peru and the US. Altogether, we estimate a total of 3.4 Mt/year of copper production could be jeopardised (2.7 Mt in Chile alone), if all the threatened strike action materialises. The concentrate market already appears to be tight, as demonstrated by falling spot smelter processing fees, which currently stand at multiyear lows of $10/t (treatment) and $0.01/pound (refining).
Copper Outlook
The copper price has astonished so far in 2009, largely thanks to China's imports. These imports are likely to slow in Q4 2009 and the price therefore ought to stabilise.
But if the global recovery genuinely proves to be V-shaped, then Western world demand and restocking could push the copper price above $7,500/t in early 2010; and longer-term the failure to invest in new world-class projects will create significant deficits. Short-term LME three-month price: $5,750/t-$6,500/t. |
