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Copper halted a four-session slump Tuesday as economic concerns eased following a drop in the price of crude oil. On Monday, crude closed at a 29-month high on disruptions in Libya.
By Leia Michele Toovey-Exclusive to Copper Investing News
Oil fell as much as 2 percent to $103.33 a barrel today over speculation that members of the Organization of Petroleum Exporting Countries will meet to discuss ways to make up for the loss of production out of Libya. Copper futures for May delivery rose 10.3 percent, to close at $4.3385 a pound on the COMEX in New York. Earlier in Tuesday’s volatile session copper touched $4.254, the lowest since Feb. 24. On the London Metal Exchange, copper for delivery in three months gained $31, or 0.3 percent, to $9,530 a metric tonne.
“Oil prices at $140 a barrel would cause some advanced economies to slide back into recession,” commented Nouriel Roubini, the economist who predicted the global financial crisis. “If you had the oil price going up to where it was in the summer of 2008, at $140 a barrel, at that point some of the advanced economies will start to double dip,” he told reporters in Dubai. “In the U.S., where growth is accelerating fast, a 15 to 20 percent increase in oil prices, there won’t be double dip, but growth reaching a stalled speed again.”
High oil prices run the risk of stalling the economic rally by encouraging businesses and consumers to cut discretionary spending. While oil is still off its 2008 peak of $140 per barrel, the average prices consumers are paying at the pump is near its 2008 high. This has many consumers already voicing concerns over how high the price of fuel will climb. If this sentiment spreads, it may prompt consumers to tighten their purse strings.
Meanwhile, the fundamentals of copper remain strong. Tongling Nonferrous Metals Group Co., China’s second-largest copper producer, said that it believes China’s copper demand in 2011 may be the highest in at least four years. The nation, which is the world’s largest copper consumer, has targeted an 8 percent growth rate in 2011. With this rapid growth is an increase in the amount of copper needed to upgrade infrastructure and build more homes, autos and appliances. Smelters in China are operating at more than 90 percent capacity and most are using more scrap material than usual because of high refined prices. “Overall, copper demand this year will be good – certainly it will be better than 2008, 2009 and 2010,” said Tongling Chairman Wei Jianghong said.
Company news
Copper Canyon Resources (CCR) (TSXV:CPY) has agreed to support an acquisition of the company by NovaGold Resources (AMEX:NG) after initially rejecting the offer as “too low.” Just last week, CCR announced that it had filed a statement of claim against NovaGold in the British Columbia Supreme Court, and also asked the province’s securities regulator to cease trade the offer. Now, CCR has completely changed its tone, announcing yesterday that it had entered into a binding letter agreement providing for NovaGold to acquire all of the outstanding common shares of CCR. Both companies’ boards of directors have approved the agreement, and CCR has agreed not to solicit other transactions. CCR owns 40 percent of the Copper Canyon copper/gold/silver property, which lies right next to NovaGold and Teck Resources’ (NYSE:TCK) Galore Creek project in British Columbia. NovaGold owns the other 60 percent.
Xstrata Plc. (LON:XTA), the world’s fourth- largest copper producer, signed a letter of intent to buy the Argentinian Agua Rica copper and gold project from Yamana Gold Inc. (NYSE:AUY) through its joint venture with Goldcorp Inc. (TSX:G). The joint-venture, Minera Alumbrera, will get an exclusive four-year option to acquire the project for $110 million, subject to a binding agreement being reached. Yamana will receive an additional $150 million should Minera go ahead with building the project, $50 million on commissioning the development and a portion of revenue from gold sales. Xstrata owns half of Minera, while Goldcorp holds 37.5 percent, and Yamana has an interest of 12.5 percent. Xstrata Copper will finance 57.14 percent of payments related to the option and Goldcorp will finance the remainder.