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- The latest Editorial from Peter Hollands, Paul Dewison and Christopher Welch:
- February 18th 2008 - In the December issue of the Briefing, BME forecast small excesses of production over consumption in 2008 and 2009, equal to the normal growth in essential
working stocks. That is, we expected the market to be in approximate commercial balance for the next two years. Accordingly, we expected the high-level cash price plateau, averaging $7,100/tonne, to continue. Most other analysts were then predicting commercial surpluses.
Since then, large exchange stock falls and a continuing high level of cancelled warrants on the LME have prompted many holders of short positions in the market to cover and have also caused many analysts to question their earlier forecasts of market surplus. The arrival of a what is almost a new generation of supply disruptions - power shortages in various producing countries - is also leading us to wonder whether 2008 and 2009 might both be years of deficit in the refined copper market. - Consumption Trends
- In 2006, China’s consumption growth fell to under 5% and there was de-stocking of refined copper, semis and copper intensive products. The slump in US house building started to take effect, and total consumption in the US fell by 145 kt and first stage consumption in Mexico fell by 70 kt. However, global consumption rose by 4% as double digit consumption growth in Europe, particularly Belgium, Germany and Italy, compensated for the growth declines previously mentioned.
In 2007, the US house building slump worsened, however US and Mexican combined first-stage consumption fell by only 20 kt as imports of semimanufactures were more severely reduced. As the US dollar weakened further, plants in Canada and Europe lost competitiveness in semi-fabricating, which lead to plant closures and cut backs. This caused falls in refined consumption of 70 kt in Canada and 105 kt in France, minor falls across the rest of Europe, and the stalling of consumption growth in Russia and Brazil. Chinese first stage consumption was very robust during the year, as well as in U.A.E, India, and Egypt, which off-set falls in consumption elsewhere, and global refined consumption rose by roughly 3.5%. - Mine Supply and Stock Trends
- Power supply limitations and hydro-electric plant faults cut approximately five days of production from the African copper-belt mines during January, and have critically reduced power supply confidence after 300 workers were trapped underground. Mine managers will now err on the side of caution when sending teams down to work, which may be a source of mine production loss in the near future.
Refined production in China has been cut by severely bad weather which effectively stopped steam coal transportation across the country to power stations just before the New Year’s celebrations. For example, Jiangxi Copper, one of the largest Chinese refined copper producers, was forced to cut smelter production by 40% in mid January and has not yet regained full production. Although this will lead to short term under supply of refined copper into the domestic market, it is possible that some smelter-refiners will bring forward planned maintenance, thereby cutting production loss that had been expected later in the year. - Price Trends
- The LME cash price crossed the $8,000 barrier on February 18th as China started its new year with increased imports and apparently strong demand, coupled with LME stocks reaching four month lows. Copper for immediate delivery in Changjiang, the biggest cash market in Shanghai, rose to over 66,060 Yuan, or ~$9,230, as increased New Year demand pushed prices up by 1.2 % on February 18th. Three month copper in Shanghai also rose to 66,170 yuan/t ($9,247/t), compared to the LME three month price of $7,920/t. Arbitrage between LME and SHFE material has remained in favour of the LME for most of the last two months.
- Macroeconomic News
- Industrial production for both OECD member and nonmember countries stayed robust throughout 2007, but lost ground towards the end of the year. CHR Metals estimates that member growth is slipping to the 3% level, which remains above the average for the last decade, and non-member growth slipped to the 9.5% range, just off a 10 year high that was achieved in mid
2007. Combined industrial production growth is not expected to dip below the 4% level before 2010. This is a picture very different from newspaper headlines on the difficulties of some financial companies.
In Japan, economic growth of 3.7% in the final three months of 2007 has been overshadowed (in terms of significance for copper) by a drop of 9.1% in housing investment. Also, industrial production has fallen by 1.4% in spite of exports from Japan remaining steady. A recent downgrade of the economic growth prediction from the Bank of Japan highlighted the importance of the building sector which has been hit by a tightening of earthquake protection regulations. Economic growth for this year is now predicted to be below 2%. - Subscription Prices
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