Monday, April 6, 2009

Analysts Estimate Copper Prices Could Fall 21% in Q2

It might seem strange to focus so much on one metal, but copper is truly an industrial king pin and the recent jump in the metal - apparently due to restocking in China [Mar 23: - Chinese Stockpiling Spurs Copper Price Rally] has helped support the bull run... it's a green shoot after all. We saw the exact same thing with iron ore/Baltic Dry Index the month previous and once the Chinese backed away from the dinner table, well rates for bulk shipping fell right back off the cliff.

While this Bloomberg article has nothing but analysts estimates for Quarter 2, it will be interesting to see how it plays out as copper is Dr. Economist. Even more interesting is if the projections are accurate, will the market shrug it off as it has the relentless downfall in the Baltric Dry Index the past month... instead pointing to some murky future of recovery that only the Oracle (market) is so wise to see. Copper, much like oil [Mar 27: Thesis Buying 101 in Oil - Even Experts Mock It], has been increasing for no apparent reason other than "thesis" - in both cases most 'experts' have been bamboozled by speculators who see a completely different future ahead of us. Further it appears China's buying power (get used to it folks) is so immense that they are causing havoc in "price signals" that we've long relied on.... what used to be a signal of resurgence nowadays means nothing more than China (smartly) loading up on prices of said commodity at bargain prices with the very long term in mind. In this case they apparently have bought 18 Olympic sized swimming pools worth of copper. The other arguement of course (Economics 101) is as demand plummets, supply is being taken off the table at an even quicker pace. Certainly plausible I suppose but a hard arguement to make considering inventory levels are immense (near 5 year highs). But never let facts get in the way of a good thesis.

In the bottom right margin of the blog, I have a section called Industry Focus websites - of which Kitco's Copper page is the top link. I would keep an eye on copper since so much money keys off it, and I'll post the charts over the past 60 days and 6 months at the bottom of this entry to show you the trends.
  • Copper, this year’s best industrial- metal investment, may become the worst in the second quarter as demand slumps the most in three decades.
  • Known as the commodity with an economics Ph.D., copper risks losing its reputation as an industrial barometer because prices rose 40 percent by April 3, the best start to a year since at least 1986, just as the global economy contracted for the first time since World War II, according to data compiled by Bloomberg. Prices rose as China, the largest user, agreed to stockpile as much as 400,000 metric tons, based on Macquarie Group Ltd. estimates, enough to fill 18 Olympic swimming pools.
  • Copper will average $3,400 a ton this quarter, 21 percent below the April 3 closing price of $4,301 on the London Metal Exchange, according to the median estimate of 13 analysts surveyed by Bloomberg. (again this is nothing more than a guess by analysts) U.S. manufacturing contracted for 14 consecutive months, Japan’s Tankan survey of business sentiment fell to the lowest on record and euro-region unemployment rose to the highest level in almost three years.
  • We’re running out of impetus here,” said Sean Corrigan, who helps manage about $5 billion in commodities at Diapason Commodities Management SA in Lausanne, Switzerland. “We’re not building houses anywhere in the world, car sales are down by 50 to 60 percent in the major economies and commercial real estate is running into problems.” (but other than that, it's all good)
  • Consumption will shrink 9.2 percent in 2009, the biggest drop since 1975, according to Sydney-based Macquarie. New autos in the U.S. sold at an annual rate of 9.86 million units in March, compared with an average of 16.8 million this decade through 2007, according to Autodata Corp. of Woodcliff Lake, New Jersey. The average car contains 2 kilometers (1.2 miles) of copper and alloy cables.
  • Copper is very expensive, relative to the collapse in industrial demand,” said Lars Steffensen, managing director at Southend-on-Sea, England-based hedge fund Ebullio Capital Management LLP. Copper should fall to $2,500 a ton because there’s no shortage. (that would be far greater than a 21% drop if indeed it happened)
  • Global copper stockpiles tripled to about 567,000 tons since July, according to combined figures reported by the London Metal Exchange, New York Mercantile Exchange and the Shanghai Futures Exchange as of April 3. That’s equal to more than 12 days of global demand.
  • Copper’s 51 percent increase to April 3 from Dec. 24, when prices reached a four-year low, probably means China is reducing purchases, said Briggs. “I am pretty confident that the SRB is not buying at $4,000,” he said.
  • Morgan Stanley says copper is the industrial metal most likely to drop in the second half of 2009. Buying by China may have ended, demand is sagging and producers haven’t been aggressive enough in shutting mines.
  • “Money poured into copper and the industrial commodities on the assumption that growth in the developing markets would come back sooner rather than later,” said Peter Sorrentino, who helps manage $13.3 billion at Huntington Asset Advisors in Cincinnati. “That has gotten a little overdone. The stimulus packages aren’t going to have a real impact until 2010.”
This should be one very interesting market to watch in the coming months

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