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- The latest Editorial from Peter Hollands, Paul Dewison and Christopher Welch:
- May 9th 2008 - 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.
Perhaps the most important single piece of information on the market to have emerged recently was ignored completely. WBMS’s figure for January 2008 Chilean mine production showed an 18% fall from December 2007 (from 531.2 kt to 435.2 kt). While a large fall is seasonally normal between December and January, that decline was more than we had expected. Moreover WBMS’s figure for year-on-year change in global copper mine production in January was -0.5%. That compares to BME’s forecast for the full year as an increase of 5.9%. It may turn out that we (and others) have been too optimistic about mine production. It will be particularly interesting to see what first quarter production reports show for the likes of Escondida, Andacollo and Codelco Norte. Falling spot TC/RCs for custom concentrates (down to below $40/dmt and 4 c/lb in China, nearer $30 and 3c in India) support the view that mine production remained weak in February and March. If the African power crisis is indeed to be followed by a Chilean power shortage, and if that lasts until 2012 as seems possible, then the copper market could remain very tight for much longer than generally expected. - China's Consumption Examined
- Chinese consumption of refined copper and, further downstream, of copper and copper alloy semimanufactures are both growing rapidly. The country’s production of refined copper and of semi-manufactures of copper and copper alloys (such as brass and bronze) is inadequate for its end-use requirements, and each year there are large scale net imports of refined copper and of
copper and copper alloy semi-manufactures into China.
Figures for both production and trade in refined copper are published by two independent statistical agencies, namely the World Bureau of Metal Statistics (WBMS) and the International Copper Study Group (ICSG). Both organisations also publish figures for refined copper stocks on the Shanghai Futures Exchange, but not for other refined copper stocks within China, such as those of the Strategic Reserve Bureau (SRB), or those held by producers, consumers or merchants, or material in transit within the country. Both organisations publish figures for China’s apparent consumption, which they define as being equal to production plus imports minus exports plus known starting stocks minus known finishing stocks. Their figures for apparent consumption will differ from actual consumption to the extent of any changes in unreported stock. Full Report - Click Here - Consumption Trends
- Japan’s shipments of wire and cable fell by 0.3% in January to 67.2 kt according to the Japanese Electric Wire and Cable Makers’ Association (which includes Furukawa Electric Co, Sumitomo, Fujikura, Hitachi, and Mitsubishi Cable Industries). A breakdown of the figures shows that a 5% loss in wire and cable used in construction and a 3.3% loss used in the electrical category (the two largest divisions) more than offset gains in the other categories. Wire and cable used in telecommunications posted a 15% gain, electrical power cable rose by 5.7% and wire and cable used in the automobile industry rose by 12.1%.
- Chilean Power Supply
- In 2006, approximately 2.3 Mtpy (~43%) of Chilean mine copper capacity, roughly 13% of world capacity, was run on either hydroelectric power or power produced by burning natural gas from Argentina. Hydroelectric plants are currently running at their lowest levels since the last droughts in 1999 and 2000 and there is a real chance of another Argentinean gas supply crisis like those that cut supplies in 2004 and late 2006. Power supply in Chile has now become another stumbling block for copper and will lead to delays in production expansions in the near future. Full Report - Click Here
- Mine Supply and Stock Trends
- The effects of a La Nińa year in the Pacific ocean are beginning to show in copper production. As the weather system oscillates around on the ocean surface “conveyor belt” systems, small changes either pin the low pressure to the east coast of Australia, as is the case this year, or push the low pressure further into the middle of the Pacific, as in an El Nińo year. This means that this year Chile will be drier than usual and Australia and eastern Asia will be wetter. Kagara Zinc’s Thalanga operation in Queensland has already lost production due to heavy rains stopping the transportation of ore along water-logged roads. Chile, where over 30% of the world’s copper production comes from, will have a very dry year, a particular problem as the nation’s Sistema Interconectado Central power network, which provides for the majority of the population, draws ~60% of its power from hydro-electric plants. Chile’s northern power system, Sistema Interconectado Norte Grande (SING), produces power by burning fossil fuels, mostly natural gas imported from Argentina. Reduced imports of gas from Argentina and the effect of rapid increases in the price of diesel and fuel oil mean that SING is very vulnerable to power supply shocks.
- Price Trends
- The California Public Employees’ Retirement System (CalPERS), the largest pension fund in the USA, has decided to increase its commodity investments to US$7.2 billion during the next two years, or to approximately 3% of its total asset value. In March last year CalPERS invested US$440 million by tracking the GSCI, which returned 10%. This year the fund will allow its staff to actively manage some of the commodity investments. Total investments held in commodity indices have risen to approximately US$195 billion following a massive US$30 billion increase in funds invested in the first two months of 2008.
- Macroeconomic News
- Surprisingly, European industrial production (IP) growth increased to 0.9% year on year in February, significantly above expectations and in spite of the strong Euro. Germany’s IP was at the core of this growth, where better than expected weather has allowed for increased construction. German IP m-o-m growth was 1.8%, up from 1.5% m-o-m growth in December, which itself was recently revised upwards from 0.8%. Some analysts expect this growth to slow, noting that production growth is outpacing growth in orders for industrial goods.
- Smelting, Refining and Scrap
- Norddeutsche Affinerie AG noted that availability of concentrates and scrap during the fourth quarter of 2007 was good and attributes this to fewer mining disruptions combined with good mining output. It noted that the spot market for concentrates had recovered slightly towards the end of the year and it expected concentrate availability to remain good throughout 2008 due to many smelters’ planned maintenance shutdowns.
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