Commodities | Jul 26 2006
By Greg Peel
Immediate positive sentiment in the copper market is being supported by the likelihood of a strike at the world’s largest copper mine – Escondida in Chile, reports Barclay’s Capital. This has been anticipated for some time, as miners around the world, particularly in poorer countries, apply their leverage to extract at least some marginal benefit from history’s greatest commodities boom.
Peruvian miners appear to enjoy more of an accord, as although contracts at the Antamina copper in zinc mine have expired, both workers and management are content to enter a period of renegotiation, under Peruvian law, while continuing operations.
Short term drivers aside, numbers coming in from China for the first half of 2006 indicate demand for copper is falling.
Merrill Lynch reports imports of primary copper were down 45% on last year’s first half to 414kt. Domestic production is up by 22%, but apparent consumption has fallen 10% to 1.7Mt.
Merrills had forecast 2006 Chinese copper demand to increase 9% to 4.1Mt. China is currently providing 36% of world growth in copper consumption, but clearly the analysts’ small deficit forecast of 69kt for 2006 is under threat.
This answer could well lie in destocking, which, if proven the case, should imply a pick up in demand once more in the second half. And if supply constraints persist (such as strikes) the price should be supported, Merrills offers.
However, there are direct signs of a weakening in demand. One of the biggest industry consumers of copper is power generation equipment, and demand growth in this sector has eased from 37.6% in the first quarter to 21.3% over January-May.
Merrills is remaining wary.
Nevertheless, Barclays Capital anticipates a pick-up in China’s refined copper imports through the rest of 2006 on the back of robust macroeconomic growth as reflected in latest macro-economic statistics from China (GDP, fixed asset investment,
industrial production).
It looks like the copper rollercoaster may continue for a while yet.