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Any uptick in copper on strong US jobs data is seen as temporary as investments to China fall and European debt fears persist.
By Shihoko Goto – Exclusive to Copper Investing News
Copper declined steadily this week as confidence in Europe’s latest deal to tackle the debt crisis remained weak, especially as the US Federal Reserve made clear it would not step in to support the continent’s ailing banks. A stronger dollar also put downward pressure on the red metal, which is expected to offset any temporary gains due to improved US jobs data.
In a private meeting with Republican senators Wednesday, Fed Chairman Ben Bernanke told lawmakers that the central bank does not have the authority to bail out countries or banks, and that it would not go beyond providing a half-percentage point cut in the cost of emergency dollar funding for foreign financial institutions through the Fed’s currency-swap lines it had announced with five other central banks, according to news reports.
Confidence in demand for industrial materials has also been shaken by a sharp fall in foreign direct investment growth in China. Foreign direct investment dropped for the first time in over two years, down 9.8 percent from a year ago in November to $8.8 billion. China’s Commerce Ministry reported Thursday that the steepest decline came from the United States, which was down over 23 percent from a year ago to $2.7 billion.
Japanese manufacturers are also pessimistic about the future, according to the Bank of Japan’s quarterly Tankan survey of business sentiment. December’s headline index fell to minus 4, down from positive 2 in September, while the country’s large manufacturers expect conditions to deteriorate further next quarter to a minus 5 reading.
Comex copper for March delivery is trading up nearly 1.3 percent higher at $3.32 a pound in morning trade on Thursday, as December’s US jobless data reached its lowest level in over three years. Nevertheless, the red metal had fallen nearly 5 percent in the previous session, and market players continue to focus more on the downside risks.
On the supply side, though, the red metal market is seen heating up, with Freeport-McMoRan Copper & Gold (NYSE:FCX) reportedly reaching an agreement to end a three-month strike at its Grasberg mine inIndonesia. The world’s largest copper producer will raise worker’s base wages by 24 percent in the first year and 13 percent in the second year, in addition to improving benefits and offering a one-time signing bonus equivalent to three months of wages. The Indonesian mine produced about 1.2 billion pounds of copper last year for the Phoenix, Arizona-based company, which said that much of the damage to the pipelines during the strikes is now complete. Still, Freeport-McRoRan has lowered its sales volume projection for the fourth quarter to 800 million pounds of copper, having estimated 915 million pounds of copper in October for the same period. The Indonesian mine accounts for about a quarter of the company’s copper sales.
In Chile, meanwhile, Antofagasta (LSE:ANTO) has given the green light to its $1.3 billion Antucoya copper project in the northern part of the country. The company has sold a 30 percent stake to Japanese trading house Marubeni for $350 million, which will help foot the cost of developing the project. The Antucoya mine is projected to produce about 800,000 tons of copper by 2015.
“Despite recent volatility in the commodity markets, we remain confident about the long-term fundamentals of copper,” stated Antofagasta Mineral’s CEO Marcelo Awad.
It is not just copper prices that can help or hinder corporate earning, however. Shares in Poland’s KGHM Polska Miedz (OTC Pink:KGHPF) have plunged to a 15-month low as the government outlined a copper tax bill which will be implemented from next March. A copper and silver extraction tax is expected to raise about $517 million for the government, setting a maximum levy of $9,138 a ton.
The black market for copper may be facing some headwind if whistle-blowers continue to be rewarded for their efforts. This week, utilities group Georgia Transmission Corporation paid a total of $3,000 to citizens whose information led to the conviction of copper thieves in the town of Soperton. GTC has been the victim of over 125 copper thefts this year, compared to 70 in 2010. Each theft has cost the company between $4,000 and $6,000 each, bringing the total damage cost to over $600,000.
Disclosure: I, Shihoko Goto, have no interests in the companies mentioned in this article.