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Profit-taking is pushing down copper prices, which have gained amid stronger manufacturing data worldwide. Market focus is now on a possible merger between Glencore International and Xstrata.
By Shihoko Goto – Exclusive to Copper Investing News
A slew of manufacturing data from the United States, Europe, and China haskept market players on their toes this week, as investors assess whether the global economy is indeed back on track towards steady recovery. But market eyes are mostly focused on a possible merger between Glencore International (LSE:GLEN) and Xstrata (LSE:XTA) which would change the landscape of copper mining and the commodities industry at large.
On Wednesday, the Institute for Supply Management reported that US manufacturing rose to a seven-month high as its key index rose a full percentage point to 54.1 percent in January from the previous month. In Europe, meanwhile, the Eurozone’s Purchasing Managers’ Index by Markit posted a reading of 48.8, up from 46.9 in December. China too reported its official Purchasing Managers’ Index according to Xinhua rising to 50.5 in January from 50.3 in December, while investment bank HSBC released its own assessment of the Chinese economy with a reading of 48.8, up a tad from 48.7 the previous month.
Thursday’s release of the latest US jobless claims too should give copper bulls a boost in the longer term, as weekly claims for benefits fell by 12,000 to 367,000 in the latest week ended January 28.
Potential M&A on the horizon
Profit-taking on the red metal’s recent gains led prices to falter in morning trade Thursday, however, and the benchmark Comex copper for March delivery is down 0.9 percent at $3.81 a pound.
Still, the biggest news that copper traders and commodities investors in general are waiting for this week is Glencore’s anticipated buyout of Xstrata. Xstrata has already confirmed that Glencore has already approached it about an all-share offer for “a merger of equals.” Glencore, meanwhile, stated that there was no certainty about an offer being made.
Such a cautious note from Glencore has not stopped either companies’ share prices from rising, as the $80 billion all-share merger would bring together the world’s largest commodities trading house and one of the largest mining groups in the world, with copper as well as other base metal mines worldwide. An official announcement could be made by early next week, and Xstrata’s CEO Mick Davis is expected to share roles with Glencore’s head Ivan Glasenberg, according to the Financial Times. Glencore, which currently holds 34 percent of Xstrata’s total shares, has until March 1 to make an offer under British regulations. Speculation is growing that should a merger between Glencore and Xstrata go through, other industry giants such as Anglo American (LSE:AAL) and Freeport-McMoRan (NYSE:FCX) will also look for partners to secure their mining foothold.
This may be a good time to meet appetites for partnerships, with many analysts expecting copper prices to gain in the long run. Goldman Sachs, for instance, said this week that it sees the red metal as “undervalued,” but also added that the market has rallied “too much, too soon,” leading it to take a long position on copper. “We would see any pullback as a buying opportunity taking a six to 12 month view,” the investment bank said.
As for Commerzbank, it sees downward price corrections for the red metal to be limited as any weakness in the US economy would likely lead to a third round of quantitative easing with the Federal Reserve purchasing Treasury securities to push down long-term yields.
Company news
On the corporate front, Queensland-based Coppermoly (ASX:COY) said it is working towards a maiden inferred resource at the Nakru-1 copper-gold system in Papua New Guinea. The project is located on New Britain Island inPapua New Guinea.
As for Vancouver-based Capstone Mining (TSX:CS), it reported results of an updated National Instrument 43-101 compliant mineral resource estimate for the Wildfire/Copper Keel area at its Minto Mine inYukon,Canada. Follow-up drilling in the Copper Keel region of Minto South Deposit (“MSD”) in the second half of 2011 has added an additional 67 million pounds of copper resource in the measured and indicated categories. At a 0.5% copper cut-off grade, total mineral resources at the Minto Mine exceeds 1.1 billion pounds of copper.
Securities Disclosure:I, Shihoko Goto, have no interests in the companies mentioned in this article.