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In the Copper Game – China, Japan, the U.S. and Canada Playing Roles in Pricing

By Jim Williams

Copper prices slid Tuesday in overseas markets based on a couple of contributing factors. First, the ongoing uncertainty about the outlook for growth in China; and second, a drop in the euro against the dollar also put pressure on prices for the red metal.

Benchmark copper on the London Metal Exchange (LME) slipped 0.2 percent to $6,702 a ton in early trading. The price for copper hit five-month lows of $6,600 a ton earlier this month.

The focus heading into the fourth quarter remains the same, the strength of demand from top copper user China, which will return to the market Wednesday after a week-long holiday break.

“The Chinese economy seems to be decelerating and the outlook for demand is uninspiring. And at the same time we are also seeing rising mine supply,” said Robin Bhar, an analyst at Societe Generale. “There is more downside to copper than there is upside and we are likely to see prices staying at these lows and possibly moving down towards $6,000 a ton during Q4.”

The metal used in power and construction is down more than 9 percent so far this year, having lost 5 percent of its value in the third quarter.

“We might see some pre-winter stocking coming in. If that’s the case, you might see a bit of a bounce,” said Jonathan Barratt, chief investment officer at Ayers Alliance in Sydney.

Also putting pressure on metals prices was a drop in the euro against the dollar, which makes commodities priced in the dollar more expensive for holders of other currencies.

Looking ahead, prices are vulnerable to further pressure from a strong dollar as recent data showing the U.S. economic recovery gained pace is supporting the case for a rise in interest rates.

“Given that we have a Fed meeting this week where there is a possibility of Fed being hawkish, that could lift the dollar up further and this may push the copper price lower,” said Naeem Aslam, chief market analyst at Ava Trade.

Japan Is A Player in the Copper Market
Japanese copper production is expected to rise about 3 percent in the six months between now and March from a year earlier. The increase is driven by solid demand in Japan and rising exports.

Japan is the world’s number three copper refiner. News of them increasing production is sending waves across the globe regarding the price of copper because of an already higher prediction of surplus of the metal. Therefore, dragging on benchmark prices that have already fallen around 9 percent this year.

Pan Pacific Copper (PPC), Japan’s biggest copper smelter said on Monday it is aiming for a 5-percent increase in its refined copper output for the second half of the financial year that ends March 31, 2015.

Japan’s copper demand has been recovering, with urban development projects, the refurbishment of old infrastructure to withstand earthquakes and the construction of solar power plants boosting appetite for electric wire.

“We expect sound demand for reconstruction in northeastern Japan which was ravaged by the giant earthquake and tsunami (in 2011), and for infrastructure in and around Tokyo ahead of the 2020 Olympics,” said PPC spokesman Atsushige Higashimori.

Some industry analysts have said they expect end-user appetite for copper to remain robust in China, even as demand for the metal from financing deals dries up following a commodity fraud at Qingdao port.

The Japanese Electric Wire & Cable Makers’ Association last month revised up its forecast for wire shipped from Japanese factories in the 2014 business year, raising it by 2 percent from its March estimate to 726,000 tonnes on solid construction demand.

Oh Canada! A Canadian Miner Buys Chile Copper Mine
Reports out this week say Canada’s Lundin Mining Corp will buy Freeport-McMoRan Inc’s 80 percent stake in the Candelaria copper mining operation in Chile. The price tag is estimated to be at least $1.8 billion, more than doubling Lundin’s copper output.

The transaction comes at a time when copper prices have fallen by a third since early 2011. As we have been reporting, copper is currently one of the more divisive commodities among analysts, with opinions split over whether it will rally or lose ground during the rest of 2014.

Mining mergers and acquisitions have slowed to a crawl in the past year amid with a downturn in metals prices.
We will keep our eye out for more copper news, especially with the markets in China coming back from their holiday break.

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