Copper Hovers around Nine-Month Lows

By Leia Toovey- Exclusive to Copper Investing News 

Commodities plunged across the board on Monday, on speculation that demand for raw materials will drop due to debt struggles in the Eurozone. Copper led the pack in terms of the declines, with the most-active contract (for three month delivery) settling at the lowest price point since last October.

On Tuesday, copper prices continued to hover around nine-month lows following the release of more negative economic data. Contributing to the red metal’s weakness was lower-than-expects US housing market data, and a cut in global growth expectations from the IMF. On the Comex division of the New York Mercantile Exchange copper for December delivery dropped 1.5 percent, to touch $3.73 a pound, after dropping 3.8 percent on Monday.

On Tuesday, the Commerce Department reported that housing starts in the US fell 5 percent from July, to touch 571,000. Economists had forecast 590,000 new home starts for August. Also on Tuesday, the International Monetary Fund cut its 2012 global growth forecast to 4.0 percent, compared to the previous expectation of 4.5 percent, citing  the likelihood that the US and Europe will go through a second recession as reason to curb its global growth estimate.

Analysts are now concerned that copper demand is about to take a big hit, despite robust demand from top consumer China, as industrial users slow purchases. “People are waiting on the sidelines to see if prices get cheaper,” said Gary Mead, an analyst at VM Group in London. “Industrial and end-users and consumers in the wholesale sense are in a wait-and-see mode. It’s clearly the fact that there’s no decision on the table for the end of the euro crisis. There’s a tremendous amount of fear out there.”

As a sign of the bleak expectations for commodities, money managers cut their net-long positions (bets on higher prices) in 18 commodities by 5.2 percent to 1.21 million futures and options contracts in the week ended Sept. 13, according to government data. On a particularly sour note, managers cut in half their long positions in copper.

Despite near-term weaknesses, copper miners are maintaining their bullish stance over the metal’s future. Xstrata Copper (LON:XTA) recently proclaimed that global copper-cathode demand has held firm despite the macroeconomic challenges hitting the global economy. According to Charlie Sartain, CEO of Xstrata Copper, “Global demand for copper cathode is forecast to grow just below 4 percent this year, while global copper mine supply will grow by less than 2 percent this year for the fourth year running.” Mr. Sartain said he expects global copper-cathode demand to grow 4.5 percent to 5 percent in 2012, while copper mine supply would increase about 7 percent next year, which would be its highest rate of growth since 2004. Sartain acknowledged that the macroeconomic uncertainty in the West is impacting copper demand; however, developing economies such as China have “proven resilient to the downturn.”

Rio Tinto (NYSE:RIO) plans to expand output at its Kennecott Utah Copper Bingham Canyon Mine, in order to increase its long-term output of the copper. According to the CEO of Rio Tinto Copper, Andrew Harding, the group’s total copper production in 2012 will remain below 2010 due to lower grades at Kennecott and its Chilean Escondida mine in which it owns a 30 percent stake. In a shareholder presentation this week, Harding told investors that that Rio Tinto is studying to extend the life of the Kennecott mine, which supplies both copper and gold, until 2028. The output expansion will require an investment of $2 billion to $3 billion. Increasing output will require a variety of key steps, including: expanding output by deepening the pit and perhaps adding underground mining operations, installing a second pit crusher, and another grinding line. Rio Tinto has already committed $165 million to complete exploration and development studies at the US operation by 2014, which is in addition to the $238 million approved to study extending the life of the open pit to 2028. Rio Tinto is already anticipating that its copper output in 2013 will rebound, when its Mongolian Oyu Tolgoi project enters commercial production.

 

Securities Disclosure: I, Leia Toovey, hold no direct equity interest in any company mentioned in this article.