The Latest from the Copper Briefing Service
The latest Editorial from Peter Hollands and Christopher Welch:
Looking first at the physical market, the two key aspects of the first quarter were the recovery of import demand from China and the sharp draw-down in LME stocks. Moreover, the high level of cancelled warrants gives a clear indication that LME stocks will continue to decline in April too. Although there has been a partially offsetting increase in SHFE copper stocks recently, the global market has given every indication of deficit in the first quarter, a more bullish situation than had been expected when the year began. Consumption has undoubtedly been firmer than many expected, but the real surprise factor looks to have been supply.
Chinese Copper Consumption Examined
Concerns have apparently been expressed that refined copper may have been exported to China in recent years in excess of requirements for consumption and that the excess represented an unreported build up of copper stocks in that country. BME has compiled statistics to shed light on the matter and in this report readers can judge for themselves, but our interpretation of the figures is that they imply very large-scale reductions, not increases, in unreported stocks of refined copper in China in 2005 and 2006. The conspiracy theorists leave us baffled.
Latest Interactive Price Modelling News
BME has constructed models that use anticipated stock levels as a driver of price, rather than current stock levels.
Latest from the Quarterly Report on Copper
Overview of 2003 to 2012
For the five years from 2003 through 2007, the copper market was in deficit every year and prices soared from under $1,800 per tonne to around $7,000. Over the five years from 2008 through 2012, we expect to see alternating years with small surpluses and tiny deficits, with a very slight upwards trend to stocks overall. Exchange stocks are predicted to rise from 250 kt recently to 350 kt during much of 2010-2012. Modest rebuilding of strategic stockpiles is also possible. We expect cash prices to average just below $7,000 per tonne in 2008 and 2009, then for a downtrend to set in over 2010-2012, taking prices to $5,500 by the end of the period (a pattern similar to recent forward curves).
The spot market for concentrates is predicted to remain very tight in 2008 then gradually to ease over 2009-2012. Benchmark TC/RCs on Japanese annual contracts for 2008 are around $45/dmt and 4.5 c/lb. We expect that benchmark to be rolled over unchanged in mid-year and calendar 2009 contracts.
The recent past reviewed
In 2006 and 2007, the copper market was dominated by constraints on mine production: falls in ore grade at many ageing mines, strikes, shortages of equipment and of skilled personnel, by large rises in capital costs, by increasingly stringent environmental requirements and by the re-emergence of resource politics. Despite large draw-downs of stocks of copper-in-concentrates (by 245 kt in 2006 and 205 kt in 2007), primary refined production was quite inadequate. Normally, a market in deficit is balanced by a draw-down of exchange stocks. In the past two years that has not been the case.