China’s Credit Tightening Bad News for Copper

- April 13th, 2010

Copper prices backed off from the 20-month peak they scaled on Monday as China’s clamp down on credit stirred fresh fears that the red metal’s rally has been overdone.

By Leia Michele Toovey- Exclusive to Copper Investing News

Copper Dips as China Decreases Loan Availability

Copper prices backed off from the 20-month peak they scaled on Monday as China’s clamp down on credit stirred fresh fears that the red metal’s rally has been overdone.

On Monday, a rapid ascent in the metal’s price was fueled by surprisingly robust trade numbers out of China. The news from China, the global powerhouse of copper consumption, rallied copper to $8,043.75 per tonne, a 20-month high.  While the trade figures were positive for copper, the country is still downsizing lending in an effort to cool economic growth. The nation’s banks extended a smaller-than-expected US$74.82 billion in Yuan-backed loans last month. Now, the markets will turn their attention to the macro numbers on China’s economy due April 15th.

Copper has recovered more rapidly than anyone would have dared to guess, and now concerns are spreading that the metal’s rally is overdone. Industry leaders and analysts at this week’s CRU/CESCO conference said current levels may not hold without a more robust recovery in developed economies. On Tuesday, market consensus turned pessimistic as concern that copper’s price growth has outpaced demand snapped the metal’s rally.  Three-month copper on the London Metal Exchange CMCU3 fell $32 to $7,873 by 0330 GMT, having dipped as low as $7,835 in early trading. Analyst Max Layton at Macquarie said his firm just raised its long-term price forecast for copper well below the current copper price, to between $2.00 per lb to $2.20/lb ($4,840/tonne). “It wouldn’t take much for copper prices to fall from $8000 a tonne to $6000 tonne,” Layton said. “Whether it reaches $5, $7 or $8 a pound will depend on how much people believe in the economic recovery, especially in the developed world.”

It was not all downhill for copper on Tuesday; a slipping greenback and news of a widening US Trade deficit gave the metal some early day upside. However, in the end, the negative data won out. Benchmark copper for three-month delivery CMCU3 on the London Metal Exchange closed at $7,900 a tonne from $7,905 at the close on Monday. Stockpiles were relatively stable; COMEX copper stocks measured 101,128 short tones, whereas London Metal Exchange metal stocks fell by 450 tonnes to 510,625 tonnes on Tuesday.

Company News

Chile’s state-owned copper company Codelco will invest a record breaking $2.3 billion in its operations. “We want Chile to be not only a country where the big mining operations want to be present, but also a country offering services and supplies to the mining industry worldwide,” Codelco President Jose Pablo Arellano said in a statement. Copper is Chile’s main export, Codelco estimates that is has generated $26 billion in profits for Chile over the past four years.

Nevada Copper Corp. (TSX: NCU) has successfully raised $20.6 million, with a $3 million option, from a syndicate of underwriters led by Macquarie Capital Markets Canada Ltd. Excluding the option, the syndicate is buying 6.7 million common shares of Nevada at a price of $3.05 on a bought-deal private placement basis. The net proceeds from the offering expected to close April 27 will be used to fund development of the company’s Pumpkin Hollow property, which is a copper-gold-silver-iron property in Nevada, and for general working capital purposes.

Southern Copper Corp (NYSE: SCCO) on Tuesday has sold off $1.5 billion worth of debt in a two-part sale. The offering included $400 million of 10-year notes priced to yield 162.5 basis points over comparable U.S. Treasuries and $1.1 billion of 30-year bonds priced to yield 212.5 basis points more than U.S. Treasuries. The sale was managed by Credit Suisse, Goldman Sachs and Morgan Stanley.

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