Economic Optimism Spurs Copper

- January 4th, 2011

Copper futures hit record territory in London Tuesday, buoyed by positive manufacturing data from around the world. Tuesday’s new high was the fifth time in the past seven trading sessions that copper hit a record.

By Leia Michele Toovey-Exclusive to Copper Investing News

Copper futures hit record territory in London Tuesday, buoyed by positive manufacturing data from around the world. Tuesday’s new high was the fifth time in the past seven trading sessions that copper hit a record.

Manufacturing in the United States and Europe accelerated in December, boosting optimism that the global economic recovery will accelerate. London Metal Exchange benchmark copper for delivery in three months rallied to $9,725 a tonne, COMEX copper for three month delivery stood at 443.50 cents/lb., down 2.25 cents and off Monday’s peak of 449.80 cents.

The U.S. manufacturing sector grew in December at its fastest pace in seven months, marking the 17th straight month of expansion, according to The Institute for Supply Management. The ISM’s index of factory activity rose to 57 percent in December, up from 56.6 percent in November, and the index’s highest level since last May. Readings over 50 percent indicate that more firms are growing than contracting.

The gradual increase in U.S. manufacturing output corresponds with a worldwide trend. JPMorgan Chase on Monday said its global-manufacturing index reached a six-month high to finish out 2010, setting the stage for faster economic growth in 2011.

Manufacturing in Britain and the troubled euro-zone soared in December, according to Markit. Markit’s British purchasing managers’ index (PMI) hit a 16-year high. Manufacturing new orders and production grew at the highest rate since May. Export orders rose at their fastest pace since April’s record number. Markit Purchasing Managers’ Index recorded a level of 57.1 for December, up from an earlier estimate of 56.8 and above November’s 55.3. As with the ISM’s measurement, any number above 50 indicates growth.

Copper prices have been rallying for the past months on expectations that demand will outplace supply in 2011. While demand will continue to be supported by China, a decline in ore grades in the world’s operational mines and a scarcity on new mines in the pipeline will further exacerbate the supply-demand shortfall. BMO Capital Markets has anticipated a deficit of around 380,000 tonnes over the next 12 months; while Standard Bank predicts a gap of 385,000 tonnes as mining companies struggle to keep pace with growing demand. Goldman Sachs believes all the facts combined will result in a price tag of $11,000 before the year end, while Bank of America Merrill Lynch has set the bar at $11,250 per tonne.

Company News

Pan Pacific Copper Co. plans to start operating its Quechua copper mine in Peru at the end of 2014, with annual production targeted at 75,000 tonnes per year. Pan Pacific will finish its environmental study on the project this February. The company has invested $70 million in studies of the deposit to date, and will conclude a feasibility study in the first quarter of 2012.

Anglo American Plc. and Xstrata PLC are seeking approval to begin copper shipments from a new site for its Collahuasi venture; the worlds third-largest copper mine. Over two weeks ago, an accident that caused three deaths shut its port in northern Chile.  The company has since invoked force majeure.

Patache may remain closed for “a couple of months,” Miguel Angel Duran, Anglo’s head of Chilean operations, told reporters in Santiago on Dec. 23. Collahuasi processes ore into concentrate, an intermediary product that’s transported by pipeline to Patache. Collahuasi produced 535,000 metric tons last year, or 3.5 percent of global output, according to Standard Bank Plc. Its production is only surpassed by Escondida and Freeport-McMoRan Copper & Gold Inc.’s Grasberg mine in Indonesia.

Codelco announced Tuesday that 2010 was a record year for its Radomiro Tomic mine. The mine produced 309,400 tonnes of copper cathodes in 2010. Output was enhanced by a new bioleaching facility that opened in 2010. Codelco spent roughly US$5.5 million for the plant that can process roughly 20Mt of ore with an average copper grade of 0.55 percent.

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