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Copper commenced Tuesday in positive territory, extending Monday’s winning streak on the back of the longest run of inventory declines in over a year. Copper is ignoring overall market sentiment as lower than anticipated earnings reports from both Goldman Sachs and IBM wreaked havoc on the American and European stock markets.
By Leia Michele Toovey- Exclusive to Copper Investing News
Tuesday marked the 23rd straight day that inventories tracked by the LME shrank. LME-monitored copper inventories fell to 419,600 tonnes, the lowest level since Nov. 18. The current streak of inventory drops is the longest since a 40-session run that ended on July 2, 2009. Cumulatively, stockpiles are down 16 percent this year and on course for the first annual drop since 2004.
Bookings to remove copper from LME warehouses jumped 5.7 percent to 33,050 tonnes. Immediate-delivery metal’s discount to the three-month price narrowed to $15.25 yesterday from $16.25 in the previous session and $21 a week ago.
Adding extra impetus to copper is easing concerns over Chinese demand. Despite the drop in the US and European markets, Chinese shares rallied for a second day on prospects that the state may relax tightening measures as the economy slows.
Futures for September delivery gained 0.85 cent, or 0.3 percent, to $2.9465 a pound at 8:05 a.m. on the Comex in New York, paring a gain of as much as 1.5 percent. Copper for delivery in three months added 0.5 percent to $6,542 a metric ton on the LME.
For the rest of the year, copper demand will outpace supply, at least according to researcher Harbor Intelligence. The Texas-based firm believes that the supply-demand gap will be 125,000 tonnes this year, and widen to 180,000 tonnes in 2011. “Prices have exited the correction/bear-market phase, and we should expect higher prices for the rest of the year and early 2011,” Harbor Intelligence said. As for a price prediction, Harbor sees Comex copper prices averaging $3.28 a pound ($7,231 a tonne) this year before rising to $3.70 next year.
Company News
A brief supply disruption at the world’s largest copper producer has come to a close. Codelco, the world’s top copper producer, has resumed extraction at its key Codelco Norte division after strong winds briefly halted operations. Codelco was forced to partially halt extraction at its Radomiro Tomic, Chuquicamata and Mina Sur mines on Sunday afternoon after the strong winds impaired visibility. The three mines which make up Codelco Norte extract nearly half of Codelco’s total output or over 5 percent of the world’s mined copper. Because the supply disruption was so brief, it played little influence into copper prices. Strong winds are common during the winter in the desert plains of northern Chile, but they rarely disrupt mining operations.
Meanwhile, supply at the world’s largest copper mine rose in the second quarter, thanks to the mining of higher grade ores. Rio Tinto Group (NYSE:RTP) owner of 30 percent of Escondida, was entitled to 81,000 metric tonnes of mined copper compared with 76,200 tonnes a year earlier. Last year, total output at the mine, located in the Atacama Desert and operated by BHP Billiton Ltd., stood at 1.103 million tonnes of copper. BHP (NYSE:BHP) is the majority owner, holding 57.5 percent of Escondida. Escondida is currently in its 20th year of production and accounts for 9.5 percent of world copper supply.
First Quantum Minerals (TSX:FM) announced on Tuesday a drop in second-quarter copper production due to legal woes in the Democratic Republic of Congo, which have forced it to limit investment at its Frontier mine in the central African country. First Quantum is still mining at Frontier as no direct action has yet been taken by authorities to shut down the mine. However, due to the uncertainty, the company has cut back on capital investments at the mine after learning this past May that the Congolese Supreme Court had annulled its rights at the Frontier and Lonshi copper mines, following a challenge by the country’s state-owned miner. The company said its copper production in the quarter fell 7.7 percent to 85,400 tonnes, while gold output rose 27 percent to 51,400 ounces on increased production at its mines in Zambia and Mauritania. The company has lowered its 2010 copper production forecast by 6.5 percent to 360,000 tonnes.