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Low stocks leave copper vulnerable to supply shocks

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Copper prices will fall as rising refined production kicks the market from deficit to surplus, but analysts say supply is currently still tight and prone to disruptions.

 

LME bonded warehouse stocks fell to 29 525 t yesterday, the lowest in 31 years and less than two days' worth of global consumption.

 

In a note Bache Financial minerals strategist Angus MacMillan said the copper market could surprise market watchers, especially when it came to supply disruptions.

 

"Now, at a time when the broad consensus is that the market is heading inexorably towards surplus, it is worth noting the recent and ongoing interruptions to supply," he said.

 

In the last two weeks operations in Chile, the United States and Zambia have been reported at risk of disruption.

 

In the United States unions at Grupo Mexico subsidiary Asarco's operations in Texas and Arizona were to meet with members to prepare for a strike.

 

"It's been almost a year since contracts covering nearly 750 hourly Asarco employees in Arizona and Texas expired, and Asarco has still not made an acceptable offer," USW District 12 Director Terry Bonds said in a press release.

 

"We must prepare for the worst, if it becomes clear we are unable to negotiate a fair and equitable agreement that is acceptable to our members," Bonds added.

 

BaseMetals.com analyst William Adams said that if a smelter or refiner were seriously affected, copper prices could make new highs.

 

Three months copper futures hit a record high of $3 435 a ton on the LME earlier this month. They currently stand around $3360.

 

"(If a smelter strikes) you would see a move to higher ground...you could easily see a $200 rally," he said.

 

Mine supply is rising, but to tilt the refined market into the expected surplus, the ore needs to be smelted into cathodes.

 

In Chile labour issues could also threaten output.

 

Unions at Placer Dome's 150 000 t per year Zaldivar SX-EW copper plant in Chile said they had cut off contract negotiations with management and will begin a strike on Monday if they do not get an improved wage offer.

 

Elsewhere in Chile an earthquake earlier this month has cost 300 tonnes a day in lost production from BHP Billiton's 115 000 t-per-year Cerro Colorado SX-EW, but the company said output could resume this week at half capacity.

 

Last week the Zambian government said it will shut down mines operated by Mopani Copper Mines (MCM), the country's second biggest copper producer, unless immediate steps are taken to improve safety.

 

"I will suspend the mining licence of Mopani unless the company immediately puts in place safety monitoring measures with shop stewards under the Mine Workers Union," Mines Minister Kaunda Lembalemba said on Friday.

 

Mopani officials said earlier this month that total production of finished copper from its Nkala and Mufulira mines in 2005 would decline from a planned 190 000 t to 185 000 following a series of accidents.

 

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from the news wires...

 

 

Despite murmurings of an impending swoon, copper is widely expected to keep

defying physical supply-demand logic by staying around record levels in the

coming weeks.

The flagship base metal surprised many by rallying to a record $3,435 a metric

ton on the London Metal Exchange in mid-June, after dipping below $3,000 in May.

Since then, prices have slipped but most analysts and traders are leaning toward

further gains in the near term.

Even as producers increase output and global demand growth comes off the boil,

the collective inventory of warehouses in London, New York and Shanghai has

shrunk to its lowest level in decades, with no sign of an immediate turnaround.

These critically low warehouse stocks are keeping prices stronger for longer

than many expected and may provide the setting for new highs in the coming

weeks, market-watchers say.

"In the short-term, there are no signs of global inventories turning around at

all," says Robert Rennie, chief currency strategist at Australia's Westpac

Banking. "If anything, the risks are on the top side,"

China's voracious appetite for commodities in general is a key factor

bolstering copper, with recent data indicating China's copper imports and

consumption generally should remain strong, he says. In addition, the Shanghai

Futures Exchange has been something of a price maker in recent sessions, largely

shrugging off downside pressure from the LME and the Comex division of the New

York Mercantile Exchange in mid-June.

Shen Haihua, an analyst with Southwest Futures Shanghai, says global market

tightness means going short on the Shanghai exchange is too risky for the time

being even as physical supplies rise.

And the perceived risks, according to several analysts, are being exacerbated

by rumors that hedge funds, producers or both are withholding stock.

David Thurtell, a commodity strategist with the Commonwealth Bank of

Australia, agrees the divergence between barrel-scraping warehouse stocks and

seemingly plentiful physical supplies does seem suspicious.

"There are questions about some big party holding a lot of metal off warrant

to play some games and try to make some money," Thurtell says.

Major producers Xstrata (symbol: XSRAF.PK) and BHP Billiton (BHP) deny

stockpiling, saying their policy is to operate at the lowest levels possible.

The rumors are "completely mad" in the current price environment, says a BHP

Billiton spokesman. Nevertheless, sentiment is key while inventories are so

tight, analysts agree, pointing to recent market-moving mine closures in Peru

and Chile.

A slightly weaker U.S. dollar could be another factor supporting continued

strength in copper prices over the next few weeks, while copper's chart patterns

too remain supportive, as long as LME prices hold June 23's $3,257.50 low.

Not everyone agrees with the positive short-term picture. Rising physical

supplies and signs global demand is waning have some saying current prices are

unsustainable even in the short term and the bubble may be about to burst. "Odds

are high that the hedge-fund-inspired short squeeze on the LME will at some

point result in a short, sharp decline," says Craig Ferguson, senior currency

strategist at Australia & New Zealand Banking Group.

The catalysts for such a decline, perhaps in the next two-to-three weeks,

could be a 5% fall in U.S. equity markets or oil hitting $65 a barrel, he says,

adding, "copper never does anything gradually."

Most analysts and traders, however, say inventories are just too tight for

prices to tank right now, although further volatility is assured.

One thing market watchers do agree on is prices will begin a long-term

downtrend once the market goes back into surplus sometime late next quarter or

early in the fourth quarter. Daniel Hynes, natural-resources analyst at

Australia's ANZ Bank, expects copper to end the year 10% to 15% lower than

current levels, while Ferguson and ABN Amro analyst Nick Moore forecast a 30%

decline.

 

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LME 3-month copper last $3,287.50/ton, up $26.50 on

London PM kerb, extending 2 days of gains spurred by extended mine strikes in

Arizona, Chile against backdrop of critically low, declining warehouse stocks.

Signs of a manufacturing pickup also bolsters sentiment ahead of tonight's July

options declarations, says Standard Bank. Charts also suggest more upside moves

but strong USD, continuing talk of impending large shipments weighing on

sentiment; still, analysts say funds unlikely to go short until shipments

actually materialize.

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Fresh from aireview (just released):

 

COPPER BEARS COME OUT TO PLAY

 

Copper was subjected to a wave of speculative selling late on Friday, reports GSJB Were. By the close in London, the cash price was trading at US$1.56/lb, having hit a low of US$1.53. One week ago, copper peaked at US$1.66/lb.

 

The marketÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¾Ãƒâہ¡ÃƒÆ’‚¢s attention remains closely focused on the red metal, and whether this is the start of the long awaited price correction, says Weres. However, lead and zinc have also borne the brunt of the recent sell-off.

 

As the accompanying chart suggests nevertheless, copper has seen a divergence from the other base metal price trends. Steel prices and freight charges have also followed the pack, leaving copper as the stand-out.

 

Weres offers an explanation in the form of the bullish argument for copper that has permeated the market in recent times.

 

The bulls argue that copper stocks are low, that the smelter bottleneck is keeping the physical market tight, and that years of underinvestment since 2000, due to low prices, will delay the arrival of more metal into the market.

 

The bullish case also points to steady end-use demand, while explaining away an apparent decline in cathode consumption in the US and Europe as a result of destocking. When destocking is over, consumers will be short and need to cover. Add to this the structural change in Chinese demand.

 

Weres does not subscribe to the bullish view. The bears argue that while Chinese demand will continue to hold up, demand in both the US and Europe has been poor ÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â‚¬Å¡Ã‚¬Ãƒâ€¦Ã‚¡ÃƒÆ’‚¬Ãƒâ€Â¦ÃƒÆ’¢Ã¢Ã¢â‚¬Å¡Ã‚¬Ãƒâ€¦Ã¢â‚¬Å“ more so than simple inventory adjustment can account for. While figures will appear negative anyway due to destocking of what were perhaps overstocked inventories, producers and consumers are still reporting a lack of business, Weres reports. In Europe in particular, spot trade is extremely thin.

 

Although there is little doubt smelter availability to date has been a major constraint on refined output, says Weres, smelter maintenances are now largely over. Weres believes production will be some 250,000t higher in the second half of the year than it was in the first.

 

That said, there is no doubt stocks are low. Where is the copper? Perhaps a good oldfashioned squeeze is underway? Weres has seen sufficient evidence to suggest the

copper market is moving into surplus and prices are set to fall.

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from the news wires..

 

LME 3-month copper $3,325/ton, up $3 on London PM kerb

after short-covering, fresh buying pushed up prices overnight spurred by ongoing

U.S., Chile mine strikes, depleting LME stocks, despite talk of imminent

shipments to Asian warehouses. Charts, near-term fundamentals suggest red metal

has recent highs in sights, especially if it breaches $3,365 resistance. Quieter

USD vs EUR after recent gains supportive, but strong U.S. non-manufacturing data

hinting at more good news for June payrolls Friday could put wind back in USD's

sails, in turn putting pressure back on metals.

 

 

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Copper prices were on the rise yesterday as recent strike action at several mines spread to a number of other facilities. Workers at an Asarco smelter in Texas walked off the job in support of striking employees at several of the companyÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¾Ãƒâہ¡ÃƒÆ’‚¢s Arizona operations. The market grew increasingly jittery as rumors swirled that workers at parent-company Grupo Mexico could also stage support strikes at Mexican facilities. Asarco said that its yearly production may fall by 100,000 to 125,000 tons because of the disruptions.

 

At the same time, a strike at Placer DomeÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¾Ãƒâہ¡ÃƒÆ’‚¢s Zaldivar mine in Chile entered its third day. Company officials report that daily production fell to 215 metric tons on Tuesday, from 390 tons prior to the strike. The news boosted copper nearly 3 cents on the day, to touch $1.62/lb. Currently, the red metal is trading at $1.6187/lb.

 

The move by copper rallied the rest of the base metals, which gained across the board. Nickel added more than 15 cents to a current $6.7083/lb; aluminum rose 1 cent to $0.7853/lb; zinc gained 1.5 cents to $0.5449/lb; and lead tacked on three-quarters of a cent to $0.3970/lb.

 

 

 

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Hi Techno,

 

Hmmm...this is a worry as, seasonally speaking, stockpiles should have been increasing dramatically over the past couple of months.

 

If the stockpiles are NOT there now (when the workers, fabricators and buyers are on summer vacation), then there will be little inventory to draw down in Q3 when the factories get going again.

 

But, where is all the new supply that we have been promised for the past 4+ months! http://www.sharescene.com/html/emoticons/wink.gif

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In reply to: SCD on Friday 08/07/05 09:14am

Hello SCD,

 

Was it in 1995 that there was a huge "artificial" (non open market) manipulation of the copper market by a rogue trader from Sumitomo???

 

History does not repeat but it often rhymes, I hear you say???

 

Time will tell. Meanwhile, I stay diversified. http://www.sharescene.com/html/emoticons/biggrin.gif

 

 

 

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from the news wires......

Shanghai's most active copper contract CNY33,250/ton, up

CNY170 midday, following closely on the heels of London close yesterday,

Shanghai-based trader says. LME 3-month copper $3,355/ton, up $22 on London PM

kerb. Trader expects prices to rise further in the coming days, $3,380

resistance to be challenged.

 

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  • 1 month later...

Humm intersting for the old Oxie - OXR

 

http://www.miningnews.net/storyview.asp?st...premiumarea.asp

 

Copper smelters to fire price down

 

 

Michael Quinn

 

 

Thursday, September 08, 2005

"COPPER prices are set for a precipitous fall before year end." Welcome to the red metal world according to Citigroup Smith Barney.

 

The brokerage expects the copper price to average $US1.54 in the second half of 2005, compared to recent price levels north of $US1.70/lb.

 

Reflecting the sharp fall expected later this year is Smith Barney's forecast for the first half of 2006 of $US1.18/lb, and a further decline to $US1.13/lb in the second half.

 

The price will then bottom out at $US1/lb in 2007.

 

The catalyst for the sharp price downturn in the fourth quarter this year is the "easing of the smelter bottleneck", with the "exceptionally" high level of maintenance closures as well as some commissioning problems resulting in the loss of around 480,000 tonnes of metal production in 2005.

 

Smith Barney said the so-called smelter bottleneck has been an important factor in supporting copper prices so far in 2005, given mine production in the first half increased by 380,000t, or 6%.

 

It also comes on the back of the imbalance in 2004 when mine production of concentrates increased by 800,000t and smelter production by (only) 120,000t ÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â‚¬Å¡Ã‚¬Ãƒâ€¦Ã‚¡ÃƒÆ’‚¬Ãƒâ€Â¦ÃƒÆ’¢Ã¢Ã¢â‚¬Å¡Ã‚¬Ãƒâ€¦Ã¢â‚¬Å“ resulting in concentrate stocks increasing by 350,000t.

 

According to Smith Barney, the origins of the bottleneck go back to 2000-2002 when mine production was severely curtailed, concentrate stocks were depleted and smelter utilisation dropped.

 

"Since then, mine production has recovered but smelter output has been constrained, firstly by a need to rebuild concentrate stocks, then by technical problems in restoring output," the broker said.

 

The build-up of concentrate stocks is said to be at record levels in Japan of 130,000t of contained copper ÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â‚¬Å¡Ã‚¬Ãƒâ€¦Ã‚¡ÃƒÆ’‚¬Ãƒâ€Â¦ÃƒÆ’¢Ã¢Ã¢â‚¬Å¡Ã‚¬Ãƒâ€¦Ã¢â‚¬Å“ up from 100,000t at the start of the year ÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â‚¬Å¡Ã‚¬Ãƒâ€¦Ã‚¡ÃƒÆ’‚¬Ãƒâ€Â¦ÃƒÆ’¢Ã¢Ã¢â‚¬Å¡Ã‚¬Ãƒâ€¦Ã¢â‚¬Å“ with worldwide estimates varying in a broad range of between 500,000t to 1.5 million tonnes.

 

Smith Barney's pitches towards the lower end of that range, and expects stocks to fall rapidly as smelters get their act together.

 

It said the signposts for the action ahead will be:

 

- declining spot TC/RCs

- declining concentrate stocks to 500,000t by year end

- increased smelter output to 12.8Mt for the year (first half production was 6Mt, while production in 2004 was 11.8Mt)

- rising smelter capacity utilisation to 82% in the second half of 2005 up from 73% in the first half.

 

Perhaps the best slant that producers can take away from Smith Barney's gloomy prognosis is that the bottom-price level of $US1/lb forecast for 2007 is "a high price relative to history".

 

 

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