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The second quarter is China’s peak demand period- it is usually during this time that the world’s top copper consumer stocks up on supplies from the copper market. However, a premium of London vs. Shanghai copper prices has some analysts wondering if China will wait before coming to market.
By Leia Michele Toovey-Exclusive to Copper Investing News
The second quarter is China’s peak demand period- it is usually during this time that the world’s top copper consumer stocks up on supplies from the copper market. However, a premium of London vs. Shanghai copper prices has some analysts wondering if China will wait before coming to market. LME copper is trading at a premium of some 2,340 Yuan to its Shanghai equivalent, accounting for China’s 17 percent value-added tax. “Copper near $10,000 is too rich for most consumers. Chinese buyers want none of it, which is why the arbitrage is wide,” said a trader in Singapore.
Bonded warehouse stocks estimated at more than 600,000 tonnes, in addition to more than 170,000 tonnes in Shanghai exchange warehouses. Currently, LME warehouses are hold 440,000 tonnes of copper– almost 10 percent of annual output.
Despite the present cautious tone, the analysts agree that China will not be able to stay away from the copper market for long. Copper will lead a rally in base metals this year as increased consumption in China reduces inventories and higher prices encourage stockpiling, according to researcher Brook Hunt, a Wood Mackenzie company. Copper, is expected to have a 570,000-tonne shortfall this year as China’s demand grows 6 percent, according to Brook Hunt. The International Copper Study Group is predicting a 435,000-tonne deficit this year.
BlackRock (NYSE:BLK), one of the most prominent financial institutions in the US, is also bullish on copper. In their $17 Billion World Mining Trust, at just below 20 percent, copper is the single largest pure commodity weighting. On Tuesday, fund manager Evy Hambro said that he expects the demand and supply outlook to keep the prices of the metal high.
Company news
Mining group Kazakhmys plc.(LON:KAZ) posted a pre-tax profit of $1.59 billion for the year to December, up 55 percent after revenue jumped 35 percent to $3.24 billion from $2.40 billion on the back of higher metals prices. Revenue from copper products rose to $2,384 million from $1,711 million, despite a reduction in sales volumes of copper cathode. Higher prices for gold, silver and zinc contributed $683 million, a $112 million increase over the prior year. The average realized copper price of $7,523 per tonne was 50 percent higher than the average realized price of $5,024 per tonne in 2009. In addition, on Tuesday Kazakhmys outlined a Chinese-backed $700 million capital expenditure program. Kazakhmys has drawn down the first $700 million of a loan from China Development Bank for capital expenditure. It is investing $400 million of that in developing the Bozshakol project in northeastern Kazakhstan, and $100 million in the Bozymchak project, which will develop gold and copper deposits in Kyrgyzstan. The remaining $200 million will be spent in expanding the group’s mid-size projects in Kazakhstan.
Freeport-McMoran Copper & Gold Inc.’s (NYSE:FCX) Indonesia unit, which runs the giant Grasberg mine, expects its copper output to fall 17 percent this year to about 1 billion pounds by weight, its chief financial officer said on Tuesday. The primary driver for the dip are differences in ore grades as Freeport Indonesia work through different sections of the Grasberg open-pit mine, a spokesman added, on the sidelines of the Ozmine conference in Jakarta. Freeport owns 90.64 percent of Freeport Indonesia, which operates the huge Grasberg copper and gold mine in Papua province, while the Indonesian government owns the remainder. Freeport owns 90.64 percent of Freeport Indonesia, which operates the huge Grasberg copper and gold mine in Papua province, while the Indonesian government owns the remainder.
The Collahuasi copper mine in Chile, the world’s number three copper mine is closer to ending its three-month force majeure on concentrate sales, according to co-owners Anglo American (LON:AAL) and Xstrata Copper (LON:XTA). Repairs on a port that was damaged in April should be completed by late April. Problems at port had not hit output at the mine; however, Collahuasi declared force majeure on December 20 after an accident damaged the Patache port ship loader. The deposit has been selling about 70 percent of its copper out of three alternate ports in northern Chile.