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Copper – The World’s Longest Roller Coaster Ride

By Jim Williams

Have you ever been to an amusement park when it wasn’t busy? No lines for the rides so the 16-year old in charge of the roller coaster lets you keep riding? Just when you think the ride is over, you get the adrenaline rush all over again as the ride shoots back out on the track. Up and down and around you go again.

That’s how it feels with copper. Just when you think the ride is over, something happens and the prices are off and running again. This week is a perfect example; strikes at two of the world’s largest copper mines continue to support higher copper prices at the start of the week. Then on Tuesday, the red metal hit a one-month low after a surge in LME warehouse stock levels. And then in early morning trading today, prices took a turn based off news out of China.

First, an update on the mine disruptions in Chile, Peru and Indonesia as striking miners are showing no signs of getting back to work any time soon. The longer the strike, the deeper cuts into supply deficits forecast for this year.

Regarding copper supply, LME copper stocks have jumped by one-third in the past week to the highest since late January at about 262,000 tons. “There were rumors circulating that the sudden influx of LME stock was a result of a major merchant delivering metal to pressure the price so they could get back an LME futures short position – a plausible argument that may well turn out to be the truth,” according to Malcolm Freeman at Kingdom Futures.

And then there is China. There is always China. The country that stares investors in the face like the steepest incline of the biggest roller coaster ever made…You see it. You know the climb is steady and slow. But, you don’t know what is just over the hill. Will the ride level off? Will it plummet toward the ground at exceptional speed?

This week it has been a little bit of both. China unexpectedly posted a rare trade deficit in February as imports surged far more than expected to support the country’s recent construction boom.  China’s trade balance deficit was a larger than expected 60 billion yuan while its dollar-denominated trade balance was also larger than forecast at $9.1 billion. The country imported 340,000 tons of unwrought copper and copper-fabricated products in February, down 10.5 percent month-on-month and 19 percent year-on-year. Still, China imported 1.43 million tons of copper ore and concentrate in February, compared with 1.25 million tons in January.

“We think price consolidation in the metals space is short term as metals, especially copper and nickel, continue to face supply uncertainties while demand across the globe is getting more visible led by China and the U.S.,” Argonaut Securities told Reuters.

CPI Financial out of the Middle East says copper prices have moved too fast too far recently…”primarily driven by improving sentiment rather than improving fundamentals. The future’s curve remains upward sloping while physical premiums have moved sideways or even moderated, signaling no rush by copper consumers to secure metal. While the risks related to today’s disruptions should not be underestimated, we believe they should be offset by sizeable stocks of non-refined metal in China and increasing recycling.”

So, in other words, hang on! The ride is just starting to get interesting. More copper news next week – or sooner if the ride takes an interesting turn.


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