Rising Stockpiles Halt Copper’s Rally

- January 13th, 2010

Copper futures lost their upward momentum on Tuesday, sending the red metal’s value down across the globe. The sudden stop of the metal’s recent ascent marked the close of copper’s fastest rally on record.

Copper Loses Momentum

By Leia Michele Toovey- Exclusive to Copper Investing News

Copper futures lost their upward momentum on Tuesday, sending the red metal’s value down across the globe. The sudden stop of the metal’s recent ascent marked the close of copper’s fastest rally on record. Benchmark copper or delivery in three months on the London Metal Exchange edged down to US$ 7,555  per tonne from Monday’s US$ 7,567.50 per tonne.

The main reason for the metals decline? 

The threat that ballooning stockpiles across the globe are posing to the supply/demand balance. Stockpiles are on the rise as miners around the globe increase output and plan expansions in an effort to capitalize on prices that are up over 140 per cent over the last year. 

While output is on the rise, there is no evidence that demand is following suit. In fact, shipments to China, the metal’s biggest user have fallen in three of the past six months. On Monday, China’s central bank said it would curb a record expansion in lending and sold three-month bills at a higher interest rate for the first time in 19 weeks. The move has analysts concerned that the consuming giant while curb purchases of metals, including copper, and this added extra impetus to the industrial metals’ downward trend.

Just the day before the metal declined, Chile’s Mining Minister sounded the alarm on the future of copper prices. Gonzalez believes that global copper prices could see an “important” downward correction as high metal inventories continue to climb.”We are worried that stock levels are climbing higher. We are at 700,000 tonnes at the moment, while prices remain high. This means that at any minute we could see a violent change and prices could fall.”

In the US, copper also slipped weighed down by a climbing greenback in turn making the metal more expensive for holders of other currencies. The US dollar jumped against the yen and the euro after an official at China’s sovereign wealth fund said that the US. Currency had hit bottom and that there was limited room for it to fall further.

Company News

As a result of Quadra Mining Ltd’s fourth quarter results,  Canaccord Adams analyst Orest Wowkodaw upgraded the company’s shares from “hold” to “buy”.  Q4 copper and gold production was 16.9 per cent and 21.5 per cent, respectively, above the analyst’s forecasts.

Wowkodaw also upgraded the company’s target share price from $15 to $20. “The Buy rating is supported by the company’s attractive relative valuation, leverage to an improving copper market, and significant near-term production growth profile” according to Wowkodaw.

Zambia Copper Investments is poised to re-list on the JSE next week, subject to shareholder approval, following securing a valuable asset in Mowana.  Early in 2009, the JSE suspended the company’s shares from trading due to listing requirements that a company should have assets to remain listed. The company was then reclassified as a “cash shell”. On January 15, ZCI will seek shareholder approval for re-listing on January 15.

Terrane Metals Crop is currently in talks with Japan’s Mitsubishi Corp and Sumitomo Corp, and two Korean companies to secure financing for its $866 million Mt Milligan gold and copper project in British Columbia. The Mt. Milligan project will produce 89 million pounds of copper and 262,100 ounces of gold annually over a 22-year mine life.  Terrane rose 6 cents, or 5 per cent, to C$1.25 on the TSX last year, shares increased almost 10-fold.

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