Expectations of continued easy monetary policy in the United States, and hopes for the European Central Bank to step in to prop up the sluggish economy, are bolstering copper demand worldwide.
By Shihoko Goto — Exclusive to Copper Investing News
Copper has gained ground this week on renewed expectations for stronger demand worldwide. Worries about Europe have lessened somewhat as the European Central Bank indicated its commitment to ensuring financial stability across the continent; it is prepared to intervene in debt markets to support Spain if need be.
Investors are more confident about Chinese appetite for the red metal, particularly because the China Association of Automobile Manufacturers reported that passenger car sales rose 4.5 percent in March to 1.4 million units.
In the United States, expectations of continued easy monetary policy and a steady stream of positive economic data are buoying investors’ bullish outlook for copper. On Wednesday, Federal Reserve Vice Chair Janet Yellen said at a New York University event that “I consider a highly accommodative policy stance to be appropriate in present circumstances.” She added “[w]e know that recoveries from financial crises are commonly prolonged, and I remain concerned that the headwinds that have been restraining the recovery could lead to a longer period of sluggish growth and high unemployment than is embodied in the consensus forecasts.”
The Bank of Japan is also expected to do more to bolster the economy. The central bank’s governor, Masaaki Shirakawa, said that “the BOJ will pursue powerful easing” as political pressure grows for the BOJ to do more to fight deflation.
Turning to Europe, European Central Bank executive board member Benoit Coeure said that the bank may resume buying bonds to lower Spain’s borrowing costs amid growing concern about the effects of Spain’s financial woes.
On the demand side, CME Group reported that COMEX copper futures set a new volume record of 127,276 contracts on Tuesday. The previous record of 117,165 contracts was set on February 21. Barclays reported that North American demand for base metals in general has been strong so far this year.
“Given our economists anticipate the US recovery to be sustained and indeed accelerate in the second half of this year (3% GDP in H2 versus 2.5% in H1), a case for sustained positive metals demand trends can be made. While China clearly dominates demand dynamics for the base complex, a robust U.S. representing close to 10% of global demand for each metal cannot be ignored as a counterbalancing or even supplementary effect,” Barclays reported.
UBS, on the other hand, is more bearish about the broader US and European economies, and demand for base metals in particular. “In the absence of further injections [from US and European central banks] in the second quarter, we expect prices to drift lower,” UBS stated.
Late Thursday, COMEX copper for May delivery is up 2.1 percent at $3.71 a pound.
Meanwhile, the powerful earthquake that struck Indonesia earlier this week rattled investors as the country is home to many major copper mines. The Grasberg mine, located in the province of Papua and owned by the world’s largest publicly-traded copper miner, Freeport-McMoRan (NYSE:FCX), is the third-largest red metal mine in the world. The quake does not, however, appear to have had any immediate impact on mining operations. Rather, it has increased awareness of the vulnerabilities of mines worldwide to natural disasters.
Lundin Mining (TSX:LUN) signed an option agreement to acquire an 80 percent stake in Spain’s Touro copper project for 60 million euros. Lundin will form a joint venture with the two Spanish companies that currently own the project and will fund all project costs should the option be exercised.
“We believe the project has the potential to be rapidly advanced and we are well on our way to making a decision on the option, having mobilized several drill rigs onto the property earlier this year,” stated Lundin CEO Paul Conibear.
Roman Copper, which is wholly owned by Toronto’s Bayfront Capital Partners, is continuing its attempt at buying Romania’s largest copper mine. In March, Roman Copper won a tender to buy Cupru Min Abrud for 200.8 million euros, but the Romanian government pulled the plug on the deal last weekend. Since then, however, Roman Copper has stated that it is willing to meet the government’s conditions, which “included an undertaking by Roman Copper to accept additional financial and other obligations that were not required in the original tender documentation.”
Junior company news
Orsu Metals (OTC Pink:ORSUF) reported that its Karchiga copper project in Northeast Kazakhstan, near the Chinese border, will have a producing mine life of 11.5 years with average mining costs of $1.70 per tonne of material moved. First production is slated for the fourth quarter of 2013.
Vancouver-based West Cirque Resources (TSXV:SIG) has secured a permit to drill at its Castle gold–silver-copper project in British Columbia. The permit is valid for a four-year term, and will allow the company to drill 20 sites.
Securities Disclosure: I, Shihoko Goto, hold no direct investment interest in any company mentioned in this article.