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Gold/Mining/Energy : Copper - analysis -- Ignore unavailable to you. Want to Upgrade?

To: Stephen O who wrote (1928)	4/29/2008 3:28:32 PM
From: Stephen O	Read Replies (1) \| Respond to of 2131

Copper premiums could rise higher still as the world's largest copper producer, Codelco, buys cathode in the spot market to cover for output lost due to labour unrest at its operations, according to market sources. European copper premiums climbed to $90-115 on a cif Rotterdam basis for grade A copper in mid-April from $70-90 per tonne previously, and have been trading in that range, amid illiquid market conditions, since. As strikes at some of Codelco's sites continue, the company has entered the market in search of alternative supplies and bought copper from a number of market sources in Europe and Asia, including hedge fund Red Kite, several industry sources told MB. Any buying interest, especially from the world's largest producer, has the potential to boost premiums, market sources said. Some offers have been heard with premiums as high as $130 per tonne as market participants with spare copper sought to take advantage of the unexpected demand, although those offers have been declined, market participants said. Still, if Codelco continues to need external copper supplies, premiums could test higher numbers. "Watch the premiums - they are going up, and I think [Codelco buying] is helping it," said a cathode producer. Spot premiums over $100 per tonne are generally seen as a sign of a strong market, with $120-130 considered "exceptionally high", said an analyst. Copper premiums in Europe were around $60-70 per tonne in April last year on a cif Rotterdam basis for grade A copper, according to MB's pricing archive. Production at Codelco's Salvador and Andina has been offline for 13 days while El Teniente has also been shut down. Altogether the three operations account for around 600,000 tpy of output, or 50,000 tpm. "They had a choice - declare force majeure or buy material from the market. They bought cathodes, mainly in the destinations where they normally ship, to compensate for the losses," claimed another copper producer. Market participants now wonder whether there is enough stock around to satisfy requirements if Codelco needs more metal. Because of the high price and the backwardation on the spreads between copper's nearby and forward prices, few market participants have been holding stocks. "Remember, at this level of prices nobody is holding stocks. Everybody is selling," said a physical copper trader. Analysts estimate that producer stocks around the globe now total some 160,000 tonnes compared with 350,000 tonnes in 2004, while consumer stocks are also estimated at 160,000 tonnes compared with a long-term average of 176,000 tonnes. "How much further material [there is to] buy, we'll have to see," said the first producer. This is not the first time that Codelco has bought from the free market. In the past it has done so to take advantage of different market situations around the globe, and it sometimes simultaneously buys and sells the red metal to arbitrage differences in premiums, some market sources suggested. Even so, "psychologically it is a big deal if Codelco is buying - it makes you wonder", a second copper trader said.