Chinese Growth Concerns Thwart Copper

- January 26th, 2010

Copper futures retreated Tuesday, as concerns over Chinese growth and a rising greenback scared away risk adverse investors. Further exasperating the situation; the risk adverse investors appear to be flocking to the US dollar.

Copper Price Declines

By Leia Michele Toovey- Exclusive to Copper Investing News

Copper futures retreated Tuesday, as concerns over Chinese growth and a rising greenback scared away risk adverse investors. Further exasperating the situation; the risk adverse investors appear to be flocking to the US dollar.

The ICE Futures US March dollar index is up 0.420 point to 78.765. As a dollar denominated commodity, when the dollar goes up copper becomes more expensive for holders in other currencies, and less international purchasers come to market. Benchmark copper on the London Metal Exchange ended at $7,395 a tonne from Monday’s $7,465 a tonne.

The metal fell to a 1-month low of $7,194 last Friday. Copper stocks in London Metal Exchange warehouses are currently at 533,575 tonnes, the highest level since early March 2009.

All signs seem to point to slowing economic growth in China.  The recent moves by Beijing to tighten monetary supply, including lifting the yield on central bank bills, and ordering banks to hold higher reserves show that the nation is taking steps to cool economic growth.  In fact, these measures have accomplished exactly that, the Shanghai Composite Index is down 2.42 per cent, to its lowest level in almost three months.

China is especially critical to the copper market since the country is the world’s No. 1 consumer of the metal.  Traders and analyst claim that the country’s stimulus plans are directly responsible for lifting the red metal’s price during 2009, when much of the Western world was in a recession.

In the United States, the metal’s number two consumer, concern gripped the banking sector as president Barack Obama threatened to fight Wall Street banks with a proposal to limit financial risk taking.

Company News

Freeport-McMoRan Copper and Gold Inc, the world’s largest public copper producer, is expecting declining sales of copper due to lower ore grades and increasing production costs at its Grasberg mine in Indonesia and the El Abra mine in Chile. The Grasberg mine contains the world’s largest recoverable reserves of copper and the biggest single gold reserve.

Current estimates have the company witnessing a 7.3 per cent decline in copper production, with estimate output in 2010 to equal 3.8 million pounds of copper. The company sold 4.07 billion pounds of copper in 2008. Freeport has a new project coming online in March 2010; Freeport is investing $1.8 billion into its Tenke Fungurume project in Democratic Republic of Congo, which is set to produce 250 million pounds of copper and 18 million pounds of cobalt a year.

Freeport anticipates its profit per pound of produced copper will be lower in 2010 than seen in 2009 due to higher prices for fuel, steel and wages, particularly in South America.  Copper production costs are anticipated to hit 86 cents a pound this year, up from 55 cents in 2009.

Aluminum Corp of China (Chinalco) is studying worldwide copper resources in order to identify the best investment opportunities, according to Lu Youqing, the company’s vice president, citing copper as Chinalco’s “next main development target.” Chinalco also said yesterday that it had posted a profit in the second half of the year, compared with a loss in the first half of 2009.

Copper prices have surged by 130 per cent since the start of 2009, the positive outlook for copper prices prompted Chinalco to establish a subsidiary last year, China Copper Company. The unit now has about 60 billion Yuan of assets.

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