Base Metals

Copper plunged to a one-month low on Monday, as fears that Greece would default on its debt permeated the markets.

By Leia Toovey- Exclusive to Copper Investing News

Copper plunged to a one-month low on Monday, as fears that Greece would default on its debt permeated the markets. Prices steadied on Tuesday, with the red metal moving in concert with the improving equity markets. Three-month copper on the London Metal Exchange rose to $8,880 a tonne on Tuesday, bouncing off Monday’s low of $8,620, its lowest price point since August 11th.

Copper prices have failed to hold on to record high prices that were met in February 2011. Since February, copper prices have encountered various roadblocks, including global, political and economic instability. Currently, the biggest resistance against an ascent in prices is growing fears of a double-dip recession. The potential of a second recession is well supported by ongoing weakness in both the American and European economies. Weakening demand in the US and Europe is “a major problem for the global economy,” and copper is beginning to suffer, said Ross Strachan, a commodities economist at Capital Economics in London.

A recent statement from Chile’s Codelco supports the concern that the slowing European and American economies are denting the demand for copper. Codelco, the world’s largest copper producer, recently announced that some of its clients in the United States and Europe have asked to cancel orders. Codelco sells about 9 percent to North America and 20 percent of its product to Europe. China is Codelco’s largest customer, purchasing approximately 42 percent of its copper.

In a statement released this Tuesday, Cochilco (Chile’s state-run copper commission) announced that it expects a global copper supply deficit of around 560,000 tonnes in 2011, and a deficit of 179,000 tonnes in 2012. The commission expects Chile’s overall copper output to reach 5.4 million tonnes year, and will rise to 5.9 million tonnes in 2012. It has pegged average copper prices at $4.17 per pound in 2011, but expects prices will ease next year, and will average $4.04 per pound.

Despite weakness in the European and North American markets, Chinese buying has kept copper prices from a precipitous downfall. Data released over the weekend showed that the country’s copper imports rose 11 percent in August to 340,398 metric tonnes, compared with the month before. Imports were up for a third-straight month, however, they were down 10 percent compared to August, 2010, according to data released by China’s General Administration of Customs.

A recent decline in treatment and refining charges in China is a sign that, at least for the long-term, copper supply deficits should remain. According to Barclay’s Capital (NYSE:BCS), the decline in copper treatment and refining charges are being driven by “extremely poor performance on the mine supply-side” and a lack of scrap supply. Charges that reached 31 cents a pound in May fell to as low as 6 cents in the spot market this month, according to New York-based Barclay’s analyst Nicholas Snowdon. The fall in the charges is “adding to an increasingly positive picture of the Chinese copper market,” the analyst added. “While flat price performance certainly remains at the mercy of macro sentiment in the short term, such signs of strength in the fundamentals support a continued market deficit.” “With spot TC/RCs heading back to unattractive terms for smelters, a likely secondary effect could well be that there is greater constraint on refined production growth and hence concentrate imports, going forwards,” Snowdon said, adding this, in turn, could benefit refined imports.

Company news

Codelco announced on Tuesday that it produced 818,000 tonnes of copper in the first half of 2011, up 2.4 percent from a year earlier, despite the recent labour disputes. Profits rose 70 percent during the January-June period to $3.9 billion, while direct cash costs fell 1 percent to $1.048 per pound of copper from $1.061 per pound during the same period last year. “The outlook of the copper market in the medium to long term continues to be promising,” Codelco said in a statement to Chile’s market regulator. “In terms of supply, aging mines and falling ore grades, increasingly complex new projects and increased geopolitical risks in new mining districts present a challenging panorama,” added Codelco.

 

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

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