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Copper prices were weighed down amid of the expectation of another recession in Europe despite the latest Greek bailout package. China’s sluggish manufacturing sector too is putting downward pressure on red metal.
By Shihoko Goto — Exclusive to Copper Investing News
Worries about China’s manufacturing sector and persisting concerns about the Eurozone’s outlook, despite the latest bailout package for Greece, are weighing down on copper prices.
The European Commission’s interim report on the European Union’s economy, released Thursday, stated that the Eurozone is heading into its second recession in three years, and cautioned that the region has yet to break out of its debt cycle.
“The EU is set to experience stagnating GDP this year, and the euro area will undergo a mild recession,” the report stated.
Greek aid package had limited market impact
Copper jumped to its highest level since last November following the EU’s decision to provide a second 130 billion euro aid package to Athens earlier this week. That initial euphoria has not, however, had lasting impact, as traders are now fretting about how effective that aid will be. The fact that credit rating agency Fitch downgraded Greece to C from CCC has also shaken market confidence, even as Greek parliament prepares to endorse a debt swap with private bondholders that should cut a further $132 billion off the country’s debt.
“Initial optimism toward the Greek bailout package has quickly turned sour, as traders weigh the facts regarding the long-term prospects for Greece and the European Union,” reported A.L. Waters Capital.
China’s copper demand
Meanwhile, anxiety that Chinese appetite for the red metal is abating is keeping traders on their toes. HSBC and Markit Economics’ Manufacturing Purchasing Managers’ Index reached 49.7 in February, below the 50 threshold which indicates a contraction. Still, the reading is an improvement from 48.8, which was reached in January.
Another worry is that China’s recently lowered reserve requirement ratio alone may not be enough to sustain base and industrial precious metals over the longer-term, according to TD Securities. The Chinese central bank cut the requirement by 50 basis points, but TD stated that “while important, this reserve rate cut still leaves the ratio at the very high historic level of 20.5 percent, and adds only about 350-400 billion yuan ($70 billion) of lendable capital to the financial system – quite small relative to the economy.”
In late afternoon trade Thursday, COMEX copper for May delivery is 0.7 percent lower at $3.81 a pound.
Company news
On the corporate front, Chile’s Collahuasi mine, the world’s third-largest copper mine, has resumed operations after a worker’s death earlier in the week forced a stop in output. Jointly owned by Anglo American (LSE:AAL) and Xstrata (LSE:XTA), the mine produces about three percent of the world’s copper.
Chile continues to attract red metal miners, as Coro Mining Corp. (TSX:COP) acquired the El Desesperado property from a local company. The Toki Cluster porphyry copper deposits currently being evaluated by Chilean state-owned Codelco are located immediately to the east of the property. They comprise the major Toki, Quetena, Genoveva, and Opache centers of porphyry copper mineralization. Last December, Codelco initiated the permitting process for production of cathode copper from the combined Quetena and Genoveva deposits.
In Indonesia, workers at Freeport-McMoRan‘s (NYSE:FCX) Grasberg mine stopped working Thursday. According to Reuters, union official Virgo Solossa said that “management didn’t abide by the deal we agreed in December.” Miners recently ended a three-month strike, which was resolved only after the Phoenix-based company agreed to significant wage increases as well as improved health and safety mechanisms at the mine.
As for NovaGold Resources Inc. (AMEX:NG), it is looking to sell its 50 percent shareholding in British Columbia’s Galore Creek project. The mining group is working with the Royal Bank of Canada and J.P. Morgan to seek out potential suitors, CEO Greg Lang stated.
Junior company news
Nevada Copper Corp. (TSX:NCU) is looking to develop Nevada’s next major copper mine on the Pumpkin Hollow property. The advanced-stage property has an indicated resource estimate of 5.9 billion pounds. The company also announced that it would be sinking an underground shaft, which will allow Nevada to access copper reserves in the east deposit. These reserves were defined in the Feasibility Study completed in January 2012.
Chile also remains attractive for junior copper companies. Kairos Capital ( TSXV:KRS.P) entered an agreement with Polar Star Mining (TSX:PSR) to acquire an interest in Chilean mineral exploration properties. Polar Star wholly owns interest in 16 mineral exploration concessions in the Nancagua property. It also has 29 exploration concessions and an option to fully acquire five exploitation concessions in the Fortuna property. Kairos will also have the option to acquire an interest in a non-core property of Polar Star.
Taranis Resources (TSXV:TRO) filed Mining Claim Applications on a second copper prospect in Finland. The Nalkajarvi prospect is a known copper occurrence which was discovered in the late 1960s by the Geological Survey of Finland. The project is located between the company’s Riikonkoski copper-gold project and its newly acquired Mavrik project.
Securities Disclosure: I, Shihoko Goto, hold no direct investment interest in any company mentioned in this article.