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Copper futures retreated Thursday, snapping Wednesday’s rally to a three-month high, as negative sentiment over China’s economic future outweighed better-than-expected US manufacturing data.
By Leia Michele Toovey- Exclusive to Copper Investing News
On Wednesday, copper futures were propelled to a three-month high, and settled at $4.4605 a pound on the Comex division of the New York Mercantile Exchange, as a report showed that newly issued June US home building permits rose 2.5 percent, to their highest rate since December. The anemic US recovery has long been a negative data point for the copper market, and the positive building data injected some optimism into the world’s second largest economy’s outlook.
Copper futures had strengthened on Tuesday, when the greenback slipped relative the euro. The dollar slipped against the euro as investors grew optimistic that debt-laden Greece would receive another bailout. Following a meeting in Brussels, Eurozone leaders put forward a draft proposal of financial aid for Greece that would provide the country with both lower lending rates and options for private-sector creditors to help the struggling country.
Thursday the optimism drained from the markets due to perceived weakness in China’s economy. The HSBC China manufacturing initial Purchasing Managers’ Index fell to a 28-month low of 48.9 in July from a final value of 50.1 in June, indicating a contraction in manufacturing activity. While the HSBC data is not the official PMI (the official government PMI is due in August) it was still perceived as a strong signal of a contracting Chinese economy, and thereby proved negative for copper prices.
The pessimistic news from China won a tug-of-war with positive data out of the US, and the Eurozone this week; however, traders reported that trading volumes were thin, pointing toward an overall tone of indecision over copper’s near-term price direction. Despite copper’s recent rollercoaster ride, analysts are confident in the red metal’s long-term fundamentals. Prices through this year, and into the coming years will be supported by a tight supply chain. According to a survey by Reuters, analysts forecast the copper market will be in a 343,150 tonne deficit this year.
Company news
Copper and gold miner Freeport McMoRan (NYSE:FCX) recently reported that its second quarter 2011 earnings doubled. Soaring metals prices caused net earnings to hit $1.4 billion, or $1.43 per share, from $649 million, or 70 cents per share, a year earlier, beating analysts’ average estimate of $1.33 per share. Revenue increased to $5.81 billion from $3.86 billion. In the quarter, the company said copper prices climbed 45 percent to $4.27 per pound, and gold rose 20 percent to $1,499 per ounce, compared to the year-ago period. Freeport’s copper sales were higher than expected; however, gold sales were slightly below the anticipated rate. Second-quarter consolidated copper sales were 1.0 billion pounds, higher than its previous estimate of 965 million pounds- with the increase attributed to good shipment timing. Gold sales of 356,000 ounces were slightly below the company’s estimate of 365,000 ounces, but higher than year-earlier sales of 298,000 ounces.
On Wednesday, Metorex reported slightly higher copper production from its operations in Zambia and the Democratic Republic of Congo for the first half of 2011, despite power supply problems in May and June. Total copper output rose 1 percent to 26,562 tonnes, from 26,358 tonnes. Metorex’s flagship Ruashi mine, located in the in the Democratic Republic of Congo, saw increased output to 16,548 tonnes in the period, from 15,467 tonnes during the same time period of 2010. Metorex is in the midst of an acquisition offer by Chinese group Jinchaun (HKG:2362), a deal valued at US$1.36 billion. On July 15th, Metorex’s board issued a statement that it recommends shareholders to vote “in favour” of the Jinchuan offer. Vale (NYSE:VALE) had previously bid on Metorex, offering competition to Jinchuan’s offer; however, the company abandoned their bid. When Vale issued its bid, analysts were bracing for a bidding war to acquire Metorex and its copper assets, however, Vale was very quick to retract its interest in Metorex, as the company was not interested in engaging in a “bidding war.” Commenting on the decision, Vale’s new CEO Murilo Ferreira, said his company will only make “opportunistic” acquisitions as it seeks to control expenditures amid record profit.