Market Forces Take Copper for a Wild Ride

- January 19th, 2010

After a volatile day, US Copper closed up 2 per cent on Tuesday; as optimism about demand from China combined with confidence from international investors to compensate for a rising greenback and increasing stockpiles.

By Leia Michele Toovey- Exclusive to Copper Investing News

Market forces push copper in different directionsAfter a volatile day, US Copper closed up 2 per cent on Tuesday;  as optimism about demand from China combined with confidence from international investors to compensate for a rising greenback and increasing stockpiles.

COMEX March copper closed up 2.4 per cent to settle at $3.4470 per lb. In India, the most-traded February contract was 0.01 per cent higher at Rs 344.20 per kg, after hitting an intra-day high of Rs 347.6.  LME copper for three-month delivery hit $7,525 per tonne, up $25 from Monday’s close.

Worries about demand from China have been weighing on copper prices for the past week. Last Monday, China’s central bank said it would curb a record expansion in lending and sold three-month bills at a higher interest rate. This week, the bank lifted auction yield on one-year bills for a second week in a row.  Unlike last weeks’ response, this week investors had mixed opinions on the long-term implications the move would have on demand for metals.  All eyes are looking ahead to Thursday’s release of detailed Chinese trade data and industrial output figures.

A strengthening greenback made copper less attractive for non-US investors. The dollar index, a gauge of the greenback’s performance against six other major currencies, gained 0.52 per cent to 77.468.  A stronger US currency makes dollar-denominated metals less attractive for non-US investors.

Copper stockpiles continued to rise, in LME warehouse stocks rose by 3,300 tonnes on Tuesday, bringing total levels to an 11-month peak at 526,750 tonnes. COMEX copper stocks climbed 300 short tonnes to 100,217 short tonnes as of Friday.

Company News

The new president of Chile, Sebastian Pinera plans major changes for Chile’s state copper giant Codelco. Pinera will keep the company state-owned, while at the same time, he plans to bring in fresh capital and boost productivity.   This is a change in plans from the start of Pinera’s election campaign when he proposed selling up to 20 per cent of Codelco.  Now, Pinera wants fresh capital to come from the state, for the retention of profits.

Capital will be used to increase exploration, extract known reserves and improve technology.

After seven years of delays, Kennecott Eagle Minerals Company a subsidiary of Rio Tinto has received the go ahead to begin construction of a nickel and copper mine in Michigan. The delay was over concerns about the environmental impact of the mine, as well as disturbance to nearby sacred site. Kennecott is also planning to refurbish a former iron ore mill in nearby Humboldt (to support the activities of the new mine).

After long negotiations, the world’s largest mining company, BHP Billiton Ltd, won a 38 per cent cut in 2010 copper processing fees from some major smelters in Japan and China.  Offering cuts are Mitsubishi Materials Corp, Pan Pacific Copper Co, and Jiangxi Copper Co, China’s biggest producer of the metal. Copper prices have risen nearly 140 per cent over the past year, as China’s imports of the red metal rose to a record.

Typically, when the volume of material moved increases, smelters decrease the amount they charge to turn concentrate into metal in efforts to compete for business.  Last month, Freeport-McMoRan Copper & Gold Inc also revised processing prices with the smelters.

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