Base Metals

The price of copper tumbled to an eight-week low of US$2.08 a pound. Will there be a chance for a rebound?

As the price of copper tumbled to an eight-week low amid concerns about rising inventories, two of Canada’s leading banks appear to be ruling out any quick rebound in the price of the red metal.
Scotiabank is forecasting that the price of copper will average US$2.20 a pound this year, down from the 2015 average of US$2.50 a pound. It expects to see an average price of US$2.20 in 2017.
RBC Capital Markets, an arm of the Royal Bank of Canada, takes a similar view by estimating that the price of copper will average US$2.25 a pound next year, a slight increase from RBC’s 2016 forecast of US$2.10 a pound.

Copper is an internationally-traded commodity and the most liquid of the base metals. It tends to be a barometer of industrial activity due to its use in water pipelines, electrical motors, appliances, computers and electrical wire.
China is the world’s leading consumer of copper, accounting for about 45 percent of world demand.
In recent months, prices have been under pressure due to rising inventories in Asian warehouses, higher than expected mine supply and a lack of supply disruptions. The combination of those factors has pushed the price down from the recent high of US$2.26 a pound on July 19, 2016.
The metal was trading at an eight-week low of US$2.08 a pound on Wednesday (August 24, 2016), even after the International Copper Study Group (ICSG) said the copper market showed a seasonally-adjusted supply deficit of 181,000 tons in the first five months of this year.
It attributed the deficit to a sharp rise in demand, that it said was fueled by high imports in China.

However, analysts at Commerzbank Commodity Research said they doubted that the supply deficit reported by ICSG will continue for the remainder of the year.
“After all, China has been not only producing, but also exporting significantly more copper recently,” Commerzbank said.
Two weeks ago, the research institute CRU said hardly any copper is being bought on the spot market at present.
Rather, it said imports of copper concentrate have soared by 43 percent year-on-year to 1.38 million tons.
CRU attributed the increase to high treatment and refining charges, which make the production of refined copper attractive for copper smelters.
Still, metal mining giant BHP Billiton said last week it is cautiously optimistic about the outlook for copper.
It said its optimism is based on the view that declining ore grades at producing mines will lead to supply deficits in the future. BHP foresees solid copper demand in China and substantial demand growth in other emerging economies.
But in the short term, Scotiabank says the outlook for copper remains “lackluster” until primary supply growth starts to wane after 2017 due to a lack of new projects.

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Securities Disclosure: I, Peter Kennedy, hold no direct investment interest in any company mentioned in this article.


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