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Copper is rising on signs of improvement in the US economy, and hopes that China will ease credit to jump-start the economy.
By Shihoko Goto – Exclusive to Copper Investing News
Numerous signs of steady economic recovery in the United States are boosting investors’ confidence to shore up copper this week. Coupled with expectations that China will make loan access easier by easing capital requirements to help bolster the economy, market appetite for the red metal is rising steadily.
Several indicators released this week show that the worst may be over for the US economy, with the jobs market as well as the manufacturing and real estate sectors gaining ground. Early Thursday, the US Department of Labor reported jobless claims falling to its lowest level in nearly four years, falling by 50,000 to 352,000. Meanwhile on Wednesday, the Federal Reserve reported that manufacturing rose 0.9 percent in December from the previous month, marking the largest increase since December 2010, with overall output rising 0.4 percent. In the real estate sector, the National Association of Home Builders/Wells Fargo builder sentiment index released Wednesday rose four points to 25 in January, marking the highest level since June 2007.
Investors’ hopes for China are high too. The National Bureau of Statistics reported earlier in the week that the country’s economy grew at its slowest pace in over two years during the last quarter of 2011, with annual GDP rising 9.2 percent compared to a growth rate of 10.4 percent in 2010. That decline has spurred market expectations that Beijing will have no choice but to ease monetary policy and soften credit controls in an effort to ensure steady growth, which in turn would bolster demand in the world’s biggest copper-consuming nation. Many analysts believe that China needs to grow at least 8 percent a year in order to ensure economic as well as social stability.
In mid-morning trade on Thursday, copper futures for March delivery were up 0.9 percent at $3.78 a pound.
European producers also anticipate demand for copper to be strong in coming months, with the continent’s largest producer Aurubis (FWB:NDA) being particularly upbeat. The German company’s CEO Peter Willbrandt said at a press conference in Hamburg on Thursday that demand from China will remain robust, while copper needs in Germany are expected to rise as the country turns away from nuclear power and builds more wind farms as well as electricity transmission lines.
Still, there are clouds looming too not least as copper producing giant Freeport-McMoRan Copper and Gold (NYSE:FCX) reported its fourth quarter earnings falling 59 percent from a year ago largely due to the strikes at its Grasberg mine in Indonesia from September to December of last year. Yet the company projects sales to rise 2.7 percent in 2011 to 3.8 billion pounds.
Meanwhile, the World Bureau of Metal Statistics reported Wednesday that copper supply exceeded demand by 46,200 metric tons in the first 11 months of 2011, compared to a shortage of 61,9000 for all of 2010.
As for the state of play at Mongolia’s Oyu Tolgoi copper mine, Vancouver-based Ivanhoe Mines (NYSE:IVN) said it would let go of its shareholder rights plan that was used to block rival Rio Tinto (LSE:RIO) from increasing its stake in the company. With the 49 percent cap on Rio Tinto’s ownership of Ivanohoe expiring, Rio Tinto will be able to raise its shareholding which may allow it to gain control of the development of the Mongolian mine. Many analysts believe, however, that Rio Tinto will hold off from any aggressive moves and instead work closely with Ivanhoe so that it can control Oyu Tolgoi in a cash and share swap. For now, market players have welcomed Ivanhoe’s moves as its shares are up over 3 percent on the news.
I, Shihoko Goto, have no interests in the companies mentioned in this article.
