Copper rebounds on China’s Industrial data

By Leia Michele Toovey- Exclusive to Copper Investing News

Copper futures rebounded Tuesday, as better-than-expected Chinese industrial production and US retail sales data boosted the red metal’s demand prospects. During the day’s trading benchmark copper on the LME rose to a session high of $9,109 per tonne.

Data released early Tuesday showed that Chinese industrial production in May rose 13.3 percent from a year-ago, higher than the forecasted 13.2 percent. This bullish report boosted sentiment over the metal’s demand prospects, suggesting that the country’s appetite for industrial metals may hold steady despite monetary tightening. The industrial production data overshadowed an announcement by the People’s Bank of China that they would increase the bank reserve lending requirements by half a percentage point. On Tuesday, the  Bank of China responded to a report that the consumer price index in May was up 5.5 percent from a year earlier by increasing reserve requirements for the sixth time this year. The increase will go into effect on Monday.

Data also showed that US retail sales fell in May, for the first time in 11 months; however, in light of the recent string of dismal numbers out of the US, the drop was less than expected. Many analysts remain bearish on the state of the US economy, pointing out that tightening consumer spending is just another sign that the recovery is the world’s largest economy is failing to gain traction.

On Tuesday, copper prices took part in the broad stock-market rally, with stocks climbing more than one percent on the sentiment that the market was “oversold.” While bargain hunting also attracted new buyers to the copper market- analysts are maintaining their bearish tone on the state of the market. “We’re cautious about demand still,” said one analyst. “I remain skittish on base metals in the wake of the overriding trend to tighten and to slow growth in China,” said Jon Nadler, Senior Analyst at Kitco Metals.

On Monday, copper prices ended at their lowest level in three weeks due to risk-aversion ahead of the key inflation data from China.  Adding to the pessimism was a downgrade in Greece’s credit rating, and persistent fears over the state of the US economy. On both Monday and Friday, LME copper closed below its 200-day moving average of approximately $8,944 per tonne, with economic pessimism overshadowing a drop in copper stocks. On Monday, Copper inventories monitored by the London Metal Exchange fell 2,075 tonnes to 473,675 tonnes, the lowest level since June 3. Canceled warrants declined 2,000 tonnes, or 11 percent, to 16,775 tonnes, the lowest level in a month.

Company news

Glencore International Plc. (LON:GLEN), the world’s biggest publicly traded commodities trader, has made an initial agreement to buy CST Mining Group Ltd.’s (HK:0985) Peruvian copper project for $475 million. Switzerland-based Glencore, will own 70 percent of the Mina Justa copper project after the two companies signed the accord on June 9, according to CST Mining Group. The agreement would give Glencore control of deposits in southern Peru with a resource base of 3 million metric tonnes of contained copper. The deal should be completed before Oct. 15^th, subject to shareholder approval and Glencore completing their due diligence.

Codelco’s CEO Diego Hernandez expects the three-week contractor strike at Chile’s El Teniente will impact future copper output. The 404,000 tonne-a-year mine was producing at 73 percent of capacity on Monday as more workers reached the mine, the company said. The strike weakened after thousands of contractors broke off, but sporadic violence flared again on Monday at a march in the northern city of Rancagua, when demonstrators pelted a bus with stones and police said they arrested about 15 people, including prominent protest leader Jorge Pena. “Development (of the mine) is falling behind, and that is going to affect us,” commented Hernandez.

First Quantum Minerals Ltd.’s (TSX:FM) Kansanshi Mining Plc, will spend approximately $900 million over the next three to four year period to increase mine production in efforts to capitalize on high copper prices. The total expected expenditure includes the $370 million expansion, which is currently underway, that will boost output to 400,000 tonnes by 2015.  The mine will produce an estimate 259,000 tonnes of copper this year. Kansanshi Mining operates Africa’s largest copper mine, which is located in Zambia.