Copper – Barometer for the Global Economy

Re: Base Metals

dubiousinfo said:

The production and consumption numbers in the table (the table is in the original article but not shown in the post above) shows a deficit for both zinc & nickel. In fact it shows Zinc actually has a higher deficit this year than the same period last year.

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Zinc production 9,710 9,871 10,357 10,261 4,268 4,350
Zinc consumption 9,377 9,848 10,656 10,636 4,366 4,470

Yeah 4470-4350 = 120 tonnes deficit for the 1st Quarter 2006

http://www.safehaven.com/article-5693.htm

thx

MS

Yet another view on Copper.

Thanks to significant demand worldwide, the base metal has outpaced all of its higher-profile precious peers by a significant margin over the last five years. Spot copper prices are up 393% from their lows in 2001.

Meanwhile, gold is up only 151%, silver is up 188%, platinum is up 202% and palladium is up 122%.

Surely, the price of copper has gotten way ahead of itself and are due for a major correction. Right? That's what the bears are saying these days.

But the underlying fundamentals in the copper industry paint a different picture. They show a world in which prices will go higher - much higher.

World-famous commodities expert Jim Rogers said there are three questions you need to ask (and answer) to determine if a commodity is headed higher in price: How much production is there worldwide? Are there new sources of supply? And are there new potential supplies?

The perfect scenario for a commodity on the rise is that worldwide production is limited or declining, there are no new supply sources that could boost production in the near-term and there is no viable replacement when prices get "too high."

Based on all three of these requirements, copper is the perfect investment right now.

Is Production Limited or Declining? Yes.

Thanks in part to rapid growth in India and China, worldwide copper demand is at an all-time high. From 1998 to 2005, total refined production of copper has gone from 14, 142 k tons to 16, 631 k tons. During that same time period, total refined consumption has gone from 13, 352 k tons to

16,884 k tons. For the last three years, copper consumption has been greater than the total amount of copper produced. As a result, copper supplies and stockpiles have shrunk to five-year lows and copper prices have skyrocketed from 75 cents a pound to as high as almost $4.

Since 1990, copper consumption has increased from 512,000 to 3,482,000 tonnes a year. In India, copper demand has increased from 132,000 to 271,000 tonnes a year. And in the United States, demand has increased from 2,150,000 to 2.5 million tonnes a year. Yet despite this growth, there is massive upside potential from here.

Japan consumes about 12 kg of copper per capita. North America consumes around 10 kg, and Europe consumes 9 kg per capita. But the massive populations in Chile, India, Eastern Europe and South America are all still consuming less than 2 kg per capita. Imagine what will happen to copper prices as they start to catch up to the rest of the world. Prices will rise - especially when you consider there is no major change to the supply side of the equation.

Are There New Supply Sources? No.

There has not been a significant new copper mine discovery in nearly 100 years. And according to the Metals Economics Group, "Worldwide, significant copper discoveries between 1998-2004 have fallen well short of what is needed to replace the copper produced - a total of just 39.9 million mt of copper in reserves and resources has been discovered, while production totaled just about 93.6 mt - although the resources in these deposits have potential for further increases over time."

Think about that for a second...

Over a six-year span, only 39.9 million tons of copper was discovered, while 93.6 million tons of copper was produced. This ratio of production to discovery simply cannot sustain itself. If we don't find a major new copper mine soon, copper production will have to slow down and prices will rise - significantly.

And a lack of new discoveries isn't the only supply concern that can push prices higher. Labor disputes, political instability, natural disasters and major accidents can all wreak havoc on near-term supply issues.

For instance...

The Escondida mine in Chile is the world's largest copper mine. It is responsible for 8.5% of global mine output - according to data from Chile and BHP Billiton (the mine's owner). Global stockpiles depend on it.

For the last five days, production at Escondida has been slashed by 60%.

2,000 unhappy miners are on strike - seeking higher wages and a larger bonus. According to Bloomberg, "The union is seeking a wage increase of

13 percentage points above the inflation rate, which was 3.8 percent in July, and a bonus of 16 million pesos ($29,400) to reflect the surge in copper prices...The company last week offered a wage increase of 3 points above inflation and a bonus of 8.5 million pesos."

Because there is no cushion in the copper stockpiles any disruption in the supply chain will cause prices to rise. According to the BBC, "There is not a lot of supply coming on stream generally this year and therefore a prolonged strike would have the potential for a significant impact on prices."

As I type, Chilean miners are blocking access roads, picketing and insisting on much higher wages. Meanwhile, BHP has already said, it will not budge further. Its last offer is its final.

Given the circumstances, it doesn't look like this strike will end any time soon. I expect copper prices to make an all-time high in the next week. If that happens, you can bet there will be talks about potential alternatives to copper - like aluminum.

Will Aluminum Replace Copper as Prices Continue to Rise? No.

It seems logical to assume that demand for copper could go way down in coming years. After all, conductors, power cables and other wires are being made with aluminum, which is also a very good conductor of electricity, and is lighter and much cheaper.

But how likely is it that everyone will all of a sudden stop using copper in lieu of aluminum?

The bears argue that copper is far heavier and more expensive than aluminum. True. But I would contend that that has always been the case.

And in recent years, you can bet than anywhere it was feasible to replace copper with aluminum it was done. That's evident by the rise in aluminum prices.

There is no doubt whatsoever that aluminum has replaced copper in wires, conductors and various electrical parts - especially as copper prices have more than tripled recently. But I would remind you that the increase in aluminum has not had any major effect on the demand for copper. In fact, demand for both metals has soared in tandem. One has not risen at the other's expense. And anyone who would have you believe that you could one day stop using copper altogether in lieu of aluminum should consider this one fact: If you took all the aluminum stockpiles in the world, it would only be enough for nine days of global consumption.

In other words, even if aluminum could be used to replace copper in every function under the sun (which it could not), you would only have enough to last nine days.

I don't think copper is in danger of being totally replaced just yet. The developing world needs both metals - not just one.

Regards,

James Boric

for The Daily Reckoning

Interesting to note that LME stocks are up over 15% since the start of the strike at Escondida. If the stike ends soon (some of the striking miners have broken ranks) there could be some short term reduction in the price.

So what do we think these charts might be telling us?

moses said:

So what do we think these charts might be telling us?

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Have been reading this thread for the first time this morning. Interesting that it has bee asleep for so long. For some time my circle have been discussing the needs and shortage of copper which is why I am so bullish on OXR. I am also taking a re-look at NGF which has dropped back to a fair value price of late.

There is strong sentiment that the weakness emerging from developed countries due to sub-prime etc., will dampen commodities. This is true to some degree but the areas you touch, oil and copper are very much in demand by the emerging economies of China and particularly India as it moves into high tech manufacture.

Alternative energy propulsion (electric motors and generators) will make huge demands on copper. So copper related strongly to energy pulls your charts together well.

Will be most interested in renewed discussion here.

Have to agree with you here and particularly given the recent central bank money printing excesses. Not just commercial demand but a lot of speculative demand will start to wash up in copper, coal in addition to the usual PM suspects.
Question is picking the right areas - unleash the copper experts!

Probably a bit early to call, but it has broken above the neckline. Will need to wait to see.

explod said:

There is strong sentiment that the weakness emerging from developed countries due to sub-prime etc., will dampen commodities. This is true to some degree but the areas you touch, oil and copper are very much in demand by the emerging economies of China and particularly India as it moves into high tech manufacture.

Alternative energy propulsion (electric motors and generators) will make huge demands on copper. So copper related strongly to energy pulls your charts together well.

Will be most interested in renewed discussion here.

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I'm inclined to agree there explod.

I remained bullish on copper from last year. A report from Mineweb that I posted on the case for copper thread last Oct, forecast a low late last year and expects it to reack $9'000/tn by 2009. Consequently, I have liked copper gold stocks and been looking for spec's with good resources and or development potential.

Copper to $9,000 - upside underestimated
Copper specialists Bloomsbury Mineral Economics believe that we can expect copper prices to reach $9,000 a tonne within the next two years.

Author: Lawrence Williams
Posted: Friday , 05 Oct 2007

LONDON -

In a presentation at Mining Journal's 20:20 Copper Day in London, Chris Welch of copper specialist analytical service, Bloomsbury Mineral Economics (BME), made a strong case for copper reaching $9,000 a tonne - $4.08 a pound - by 2009. Given that BME has a great track record on copper price predictions such a prediction should not be taken lightly!

The premise behind the prediction is that the supply gap is continually underestimated by many analysts and factors which should be built into their pricing models are often excluded. Notably Welch feels that mine production is invariably over-estimated, and the figures also do not take into account the amount of copper or concentrate which is, at any given time, tied up in working stocks, and material in transit and being processed.

This effectively means that even if, for example, metal production moves into a small surplus, as is possible in 2008, the amount that is actually available to the market is somewhat less than this and helps maintains the copper price at current levels.

The stock low point is likely to occur late this year, but copper availability is still likely to be in commercial deficit through 2008 and 2009 and may achieve balance in 2010. This is the basis for the BME price prediction of $9,000 copper by the end of 2009.

This scenario - or at least the general overestimation of copper mine production by analysts - was also commented on by another speaker, Justin Longley of International Copper Resources. He showed a most interesting chart of analysts' predictions against real output which showed a huge divergence, based on figures from Xstrata.

The point perhaps that both speakers were making is that individual corporate presentations of copper mine supply are frequently heavily overestimated but many analysts may take these as reality without applying a big enough discount for projects which are cancelled, fall behind schedule or for major supply disruptions for technical, political and labour reasons. Real growth in copper consumption remains very strong, older mines are becoming depleted and grades are declining sharply.

Another interesting point which arose in Longley's presentation was the rate of copper usage per capita in the Asian sector in particular. It was pointed out that growth in Taiwan and South Korea has been very high in relation to the developed nations where the curve was lower because of the existing copper based infrastructure. But in the real growth economies like China and India, this growth pattern has hardly started yet, and should this rise to Korean or Taiwanese levels then the effect on the$ supply/demand pattern could enormous with price development which could make $9,000 copper itself a huge underestimate!

http://www.mineweb.com/mineweb/view/mineweb/en/page36?oid=37927&sn=Detail

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Are we now at the point where business starts to look for substitutes... copper no longer safe lieing around... now have to consider the cost of security guards to protect your investment!!

reminds me of a story a couple of years ago of people shipping large quantities of coins from the Philippines to China cause they had much more value melted down (nickel and copper i think) than their face value...

Police bust copper theft racket
Matthew Burgess
March 3, 2008 - 4:12PM

Victoria Police have cracked the state's largest copper theft racket, which they say is valued at more than $1 million.

The copper wiring, believed to be stolen from a variety of locations including rail tracks, power stations and scrap metal depots, was destined for the Asian black market, police said.

The bust is the culmination of a series of police taskforces set up after the copper thefts were identified as a major problem for Melbourne's public transport network.

Police said the taskforce identified several people believed to be involved in stealing copper wiring and trying to export it overseas.

A search of a second-hand dealer store in Boronia, in Melbourne's east, last week uncovered four tonnes of copper wiring.

A customs X-ray machine later identified a further four tonnes of wiring in a shipping container, which was being held on the advice of the police Transit Safety Division.

Further searches for stolen wiring will be carried out this week.

Acting Detective Sergeant Barry Hills said the results would have a "significant impact" on copper theft syndicates operating in and round Melbourne.

"We are confident we have identified a number of key players whose illegal activities have ceased as a direct result of our investigations," Acting Detective Sergeant Hills said.

"When you consider the cost to the community and business every time copper wiring is stolen, requiring repairs and maintenance to train tracks and power stations it is quite significant.

"We hope today's results will send a clear message to people engaging in this sort of activity that we are watching them and they will be caught."

A 39-year-old woman and a 40-year-old man, both of Boronia, have been arrested and are helping police with their inquiries.

In total, police say they have seized 8.3 tonnes of stolen copper wiring valued at about $150 per kilo.
with AAP

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refined silver said:

Probably a bit early to call, but it has broken above the neckline. Will need to wait to see.

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Stockcharts chart is incorrect.

See http://charts.quote.com/cis/qc?cont=HG+#F&period=W&size=1200x550&bartype=candle&bardensity=low

Copper is on a nice run tonight!

Copper Closes at Record High in New York as Inventories Fall

By Halia Pavliva

March 3 (Bloomberg) -- Copper futures closed at the highest price ever as global inventories declined and China, the world's biggest user of the metal, boosted imports.

Stockpiles monitored by the London Metal Exchange fell 1.6 percent to 141,375 metric tons and are down 28 percent this year. China imported 128,000 tons of refined copper in January, up from 112,000 tons in December, said Robin Bhar, an analyst at UBS AG in London. Demand has jumped as the dollar fell to a record against a weighted basket of six major currencies.

``Tight concentrate and scrap markets should see strong cathode imports over the rest of this year,'' Bhar said in a report. ``The underlying trend in industrial metals remains strong, driven in large part by a steadily weakening dollar, which has little hope in sight.''

Copper futures for May delivery rose 7.35 cents, or 1.9 percent, to $3.9285 a pound on the Comex division of the New York Mercantile Exchange, a record settlement. The price reached $3.9670, the highest for a most-active contract since May 11, 2006, when the metal climbed to an intraday record of $4.04. Copper has jumped 45 percent in the past year.

Manufacturing in the U.S. shrank at the fastest pace in almost five years and construction spending fell the most since 1994 as the economy moved closer to a recession, reports showed today.

``The U.S. economy is maybe going into recession, but the market in China is growing,'' which supports copper, Tom Winmill, president of Midas Management Corp., said in an interview on Bloomberg Radio.

China's Stockpiles

Stockpiles of copper in Shanghai warehouses rose 3,697 metric tons to 48,885 tons, according to data released by the exchange on Feb. 29.

``We need to see Shanghai stocks start to `move out' if the copper rally is to sustain itself.'' Edward Meir, an analyst at MF Global Ltd. in Darien, Connecticut, said today in a report.

On ICE Futures U.S., formerly know as the New York Board of Trade, the U.S. Dollar Index, weighted against the euro, yen, pound and three other major currencies, fell to a record 73.354. The euro reached $1.5275, the highest ever.

The dollar index is down 3.9 percent in 2008 on speculation the U.S. economic slump will deepen. The gauge dropped 16 percent in the past 24 months.

``Dollar risks are here to stay,'' Benedikt Germanier, a Stamford, Connecticut-based currency strategist at UBS AG, said in a report. Investors ``are reducing dollar exposure with U.S. downside growth risks,'' he said.

Copper climbed partly in tandem with other commodities. Crude oil, gasoline, gold, platinum, corn and soybeans rose to records on U.S. futures exchanges.

On the LME, copper for delivery in three months rose $145, or 1.7 percent, to $8,575 a ton ($3.89 a pound). The metal has advanced 42 percent in the past 12 months.