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Stronger US manufacturing and job growth are pushing up demand for copper even though Chinese demand may falter as the real estate sector cools down.
By Shihoko Goto — Exclusive to Copper Investing News
With more signs that the US economy is flourishing, copper has been rising steadily this week, shrugging off the downside risks of a possible slowdown in China’s real estate market.
US jobless claims fell to a four-year low, down 14,000 to 351,000 in the week ended March 10. Likewise, the Federal Reserve Bank of Philadelphia reported in its Business Outlook Survey that the benchmark Philadelphia Fed Index rose to 12.5 from 10.2, marking its highest level since last April. The Federal Reserve Bank of New York reported that its Empire State manufacturing index rose to 20.2, its highest level since June 2010. A positive reading indicates growth, while a negative number points to a contraction.
However, despite positive economic data, caution remains in the long term on worries about China’s appetite for the red metal.
“We must not slacken our efforts in regulating the housing sector,” said Chinese Premier Wen Jiabao at the closing press conference of the annual National People’s Congress. He pointed out that China needs “long-term steady and sound growth” in the property market, rather than sharp movements that could hurt the overall economy.
A slowdown in China’s housing market would curtail global demand for the red metal considerably. The dollar’s recent gains have also kept some investors at bay, as a stronger greenback makes it more expensive for non-US investors to buy dollar-dominated commodities.
“The firm US dollar, which appreciated following the Fed’s meeting, is no doubt responsible” for growing speculation that interest rates will be raised to cool off the housing sector, said Commerzbank in a research note. “In addition, comments by Chinese premier Wen Jiabao this morning have given rise to uncertainty among market players, causing Chinese equity markets to fall sharply. Jiabao talked about inflated property prices, above all in the country’s major cities, and about the need to bring them down to an affordable level.”
Meanwhile, China is already slowing down sharply according to Adrian Mowat, JPMorgan Chase’s chief Asian and emerging-market strategist. “If you look at the Chinese data, you should stop debating about a hard landing…China is in a hard landing. Car sales are down, cement production is down, steel production is down, construction stocks are down. It’s not a debate anymore, it’s a fact.”
In late afternoon trade, COMEX copper for May delivery was up 1.2 percent at $3.89 a pound.
Company news
As expenses rose, Capstone Mining (TSX:CS) reported a slump in fourth quarter earnings despite higher copper prices. Net income reached $4.9 million, down from $8.5 million a year ago, while gross sales revenue rose 24 percent to $65.6 million. Capstone reported foreign exchange losses of $4.7 million and was also hit by income taxes of $6.4 million. In addition, the company was hurt by share-based compensation of $1.3 million and general expenses of $3.9 million. In 2012, Capstone expects to produce 80 million pounds of copper, up from the 78.3 million produced last year.
Production has resumed at Freeport-McMoRan’s (NYSE:FCX) Grasberg mine this week after a fortnight of immobility following worker violence on the site. Three employees were arrested for intimidating workers and supervisors who did not join the three-month strike that plagued the mine late last year.
Chilean state-owned industry behemoth Codelco is considering additional measures to protect its rights in a dispute with Anglo American (LSE:AAL), according to Codelco CFO Thomas Keller. In an interview with the Financial Times, Keller said that the legal battle could take “three to four years” as Codelco considers forcing Anglo American to pay 49 percent of the dividends from its Chilean unit into an escrow account. The two companies have been in conflict over Codelco’s option to buy a stake in Anglo American Sur. Codelco says it can buy a 49 percent stake, but Anglo American has been arguing that it can only buy 24.5 percent after it sold off a stake to Japan’s Mitsubishi Corp. (TSE:8058) late last year.
Junior company news
Cerro Grande Mining (OTCQX:CEGMF) reported that first quarter copper, gold, and silver sales fell from a year ago as a result of a three-week production stoppage caused by the need for mechanical repairs. Net income for the Chile-focused junior miner tumbled to $42,000 for the quarter ended December 31 compared to $938,000 a year ago.
Securities Disclosure: I, Shihoko Goto, hold no direct investment interest in any company mentioned in this article.