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Copper futures edged down half a percentage point in early trading Thursday, however, trading volumes were thin as traders adapted a wait-and-see approach ahead of anticipated statements by Federal Reserve chairman Ben Bernanke and President Barack Obama for further insight into the state of the US economy.
By Leia Toovey- Exclusive to Copper Investing News
It has been a volatile week for copper futures. Futures plunged to a one-week low on Tuesday, and then rebounded on Wednesday, in concert with a rally in equities- as upbeat corporate news and optimism over president Barack Obama’s plans for a $300-$400 billion job stimulus increased investor appetite. On Wednesday, the most actively traded copper contract, for December delivery, closed up 1.9 percent, at $4.1320 pound on the Comex division of the New York Mercantile Exchange.
On Thursday, futures edged down half a percent on the COMEX as a report released by the Labour Department said the number of people claiming new jobless benefits in the US rose by 2,000 last week. More pressure on copper futures came as European Central Bank President Jean-Claude Trichet said the bank had cut its Eurozone growth forecasts, and that risks to the economic zone “are on the downside.”
Copper has lost steam since hitting a record price back in February, and has encountered increased resistance over the last month over the onslaught of data suggesting anemic growth in both the United States and Europe. Despite the downside, copper has been fairing better than many commodities, supported by the view that increased demand from the emerging economies will support the red metal.
Despite price weakness, copper is still expected to be in short supply supported by rising demand from China. Demand will likely exceed supply by 495,000 metric tonnes in 2011, the biggest deficit since 2004, compared with 214,000 tons last year, according to Akira Miura, executive officer of the marketing and raw-material department at Pan Pacific Copper Co., Japan’s biggest producer. The shortage may shrink to 31,000 tons in 2012, he said. “Even though the market deficit will decline sharply, tightness will continue because of a lower stockpile-to-use ratio. The global- inventory ratio may decline to a 1.3-month level in 2012 from an estimated 1.4 this year and 2010’s 1.8, added Miura. Citigroup (NYSE:C) has predicted even tighter supplies. The firm has calculated that production will lag demand by 256,000 metric tonnes in 2011. Demand from top-consumer China, may increase 4.9 percent to 7.5 million tonnes this year and 6 percent to almost 8 million tons in 2012. Output is likely to grow 7 percent to 4.9 million tonnes this year and 13 percent to 5.5 million tons in 2012, according to Akira Miura.
Strikes
Strikes have been unusually prevalent this year, and as a result supply disruptions are expected to result in a total loss of at least 8 percent of total production. Every year analysts “factor-in” supply disruptions will calculating the copper market balance for a year. This year, analysts have anticipated a production loss of 4 to 5 percent. “Copper-supply disruptions will amount to at least 8 percent of total production loss this year, compared to 4 percent to 5 percent we had expected earlier in the year,” Goldman Sachs (NYSE:GS) analysts Sal Tharani and Sandeep SM said in a report dated Aug. 31. Any supply disruption will push prices higher in coming months as Chinese demand picks up after reducing domestic stockpiles and the government may not further tighten its monetary policy, he said.
On Thursday, workers at Freeport McMoRan Copper and Gold Inc.’s (NYSE:FCX) Cerro Verde unit in Peru were the latest to begin a series of strikes over pay increases. About 1,200 workers began the 48-hour strike at 8:30 a.m. Eastern Standard Time and will hold a second strike from Sept. 14, if the union and company fail to reach an agreement. Peru is the world’s third-largest copper producer behind Chile and China. “Freeport unions around the world seek to raise their wages to the same level as the rest of the mining industry,” Camacho said today from Lima. “We seek the company’s respect for the workers as they aren’t complying with our labor pact.” Workers at Freeport’s Grasberg mine in Indonesia also may strike starting Sept. 15.
Securities Disclosure: I, Leia Toovey, hold equity interests in Goldman Sachs and Freeport McMoRan Copper and Gold Inc.