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Investors look to China for clues on copper’s moves, with a push for more affording housing pushing up prices on the one hand, while inflation fears keep prices in check on the other.
By Shihoko Goto — Exclusive to Copper Investing News
Copper investors are taking their cues from China this week, as the government said it would provide financial aid to bolster affordable housing projects. Though prices are being boosted, a rise in Chinese inflation is putting downward pressure on the red metal as monetary easing becomes more difficult. There is disappointment too that Greek policy makers have been unable to reach an agreement on austerity measures, which would allow them to secure more bailout funds.
Meanwhile, mining giants are dominating the headlines, with Rio Tinto (LSE:RIO) posting a loss in the second half of 2011, and Glencore International (LSE:GLEN) possibly facing a heftier price tag for buying out Xstrata (LSE:XTA) than initially expected.
Earlier this week, China’s Finance Ministry said that it would provide support to bring down housing prices, with revenue from local government bond sales as well as property tax revenue being used in part to foot the bill. Separately, Vice Premier Li Keqiang said at a regional conference that Beijing needed to ensure that affordable housing was distributed equally. The country aims to add 36 million units of affordable housing by 2015, and in 2011, it spent about $24.2 billion on building affordable homes. According to the Copper Development Association, Chinese builders account for over 40 percent of the red metal’s use in the world’s biggest copper-consuming nation.
Still, hopes for a resurgence in housing projects across China have been offset by worries about inflation rising in the country. The government reported Thursday that January’s consumer prices rose 4.5 percent, up from 4.1 percent in December. Many investors have banked on Beijing to lower monetary policy in order to rev up the economic engine, especially after the International Monetary Fund warned this week that China’s GDP expansion rate could nearly halve to 4 percent this year if Europe’s economic outlook plummets, as Europe is China’s biggest trading partner.
As a result, there is disappointment among copper traders that Greek policy makers were unable to agree on ways to meet bailout measures Thursday in order to avoid defaulting on debts.
In early morning trade Tuesday, COMEX copper for March delivery is 0.5 percent lower at $3.89 a pound.
Company news
Major miners are also keeping investors on their toes, not in the least Rio Tinto which turned to the red in the second half of 2011, its first six-month period loss in four years due to an $8.9 billion one-time charge on the value of its aluminum business following its $8.7 billion dollar of Alcan in 2007. As for its copper dealings this year, Rio Tinto said that it has 181 million pounds of open copper shipments that will be priced in the first half of this year. The sales were provisionally at $3.44 a pound at the end of last year, the company stated.
As for Glencore, it is facing greater scrutiny regarding its $90 billion buyout proposal for Xstrata, as Xstrata’s shareholders, including Standard Life and Schroders, expect more for the deal. There has been speculation among some copper investors that a merger between Glencore and Xstrata would crowd out smaller-sized miners, and encourage more alliances between producers both large and small.
The CEO of Europe’s largest copper producer, Aurubis (FWB:NDA), told Reuters that it will continue to consider acquiring copper smelters or product makers. Peter Willbrandt took on the top spot at the beginning of this year, and said that “we remain open to the possibility of pushing forward external growth. We are in a strong financial position. But anything we do must fit well to use, we will take no risky steps.”
Junior miner Oracle Mining (TSX:OMN) reported that drilling at its Southern Arizona Oracle Ridge copper mine encountered six zones of greater than 1.0 percent copper mineralization, including 27 feet of 3.57 percent copper.
Himalayan Capital Corp (TSXV:HIM) signed an option agreement to acquire Chile’s Caballo Blanco copper-iron project through its wholly owned subsidiary, Minera Azul Ventures, which is near its existing La Higuera copper-gold project.
Securities Disclaimer: I, Shihoko Goto, have no interests in the companies mentioned in this article.