Wednesday, June 15, 2011

Goldman Calls for a Subtantial Rally in Copper Prices in 2nd Half 2011, as Chinese Stockpiles Have Potentially Fallen 50%

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Those who have been reading along the past few months, know the situation in China in regards to copper.  As a way to get around the central government's plans to try to slow down the economy, copper was being used as a form of collateral in lieu of "money".  [Mar 30, 2011: "Doctor Copper" Turning into "Banker Copper" in China?]  Apparently it did not take long for the government to sniff this out, and a crackdown began.  [Mar 23, 2009: FT.com - Chinese Stockpiling Spurs Copper Price Rally] Not unrelated, copper prices took it to the chin as China is the marginal buyer of everything on this Earth at this moment.

Bloomberg is now reporting that stockpiles in China of copper have potentially fallen by some 50%.  And Goldman has jumped on the bandwagon reiterating a call for $11,000 per ton copper, up from the current low $9000s.

  • Reuters reported that Goldman Sachs reiterated its 12 month LME Copper price forecast of USD 11,000 per tonne saying an observed large deficit in China in the month of May will add to the substantial deficit in the global copper market this year.  The investment bank said it expects China's pull on copper imports to rise in the third quarter of 2011 as exchange and bonded warehouse inventories draw down to lower levels.
Now of course the push-pull here is the slowdown in global economic activity, which is obviously a drag on the need for copper.  So the next 3-6 months will certainly be interesting to see if global demand or China's potential import demand are more important in pricing of the red metal.

Shorter term, we can see while equity markets have fallen off sharply of late - copper has actually been bouncing.  We can also clearly see it's been pushed back at resistance twice in the past three weeks.  A move over those resistance levels would be a quite positive development.



Via Bloomberg

  • Copper stockpiles in China, the world’s biggest consumer of the metal, may have dropped 50 percent in the past two months, potentially spurring more imports and higher prices.  Inventories in bonded warehouses, used to store shipments before duties are paid, may have declined to about 300,000 metric tons, according to estimates from traders and analysts in China.
  • Increased shipments into China, which represents about 40 percent of global demand, may mean a rebound in prices that fell 9.8 percent from a record in February.
  • “Metal has been leaving the bonded warehouses at quite a steady pace because it is the peak-demand season,” said Jia Zheng, a trader at Shanghai East Asia. “China is still growing, which is keeping demand robust.”
  • Three-month futures on the London Metal Exchange peaked at $10,190 per ton on Feb. 15; the metal, used in pipes and wires, traded at $9,184 a ton at 11:31 a.m. in London.
  • The amount of copper held in warehouses monitored by the Shanghai Futures Exchange, fell 53 percent from this year’s high on March 17 to 83,275 tons last week.
  • Demand in China last month “was likely being met largely out of inventory, which drew massively,” Goldman analysts Allison Nathan and Jeffrey Currie wrote in a June 10 report. The report stuck with a 12-month price forecast of $11,000.
  • The “latest numbers from China show that the country is drawing down its domestic inventories rapidly,” Tobias Merath, the Zurich-based head of global commodity research at Credit Suisse AG, wrote in a note yesterday. “China will have to step up its imports in the coming months.”
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