By Leia Michele Toovey- Exclusive to Copper Investing News
As economic malaise spread around the globe; silver and gold stocks became top performers. Worried investors flocked to both metals as a means to safe guard their investments as stocks, bonds and currencies became increasingly volatile. Copper investments were not appealing. Copper, fundamental to the transfer of electricity for buildings, machinery, transportation and construction is often used to signal changes in economic activity; copper is a mirror of economic growth. With the global economy in shambles, copper shed its value to investors.
Now, the tide may be changing. Trends over the past few days show that investors have made heavy switches out of gold and silver names, and into copper names. Last week I reported on how China’s stimulus purchases were stripping inventories and causing the metal to reach a fourth month high. Stronger Chinese copper interest since the start of the year helped boost the premium against the LME cash contracts. London Metal Exchange warehouse stock levels have declined by 36,000 tonnes since the end of February.
Add to the apparent upswing the potential in the copper market. Copper is currently going for about $1.64 per lb; compared to the $4.00 per lb it hit last year. The world’s second largest copper producer, Freeport McMoRan, shares are currently trading at $35.05 with a 52 week high of $127.24.
While junior copper stocks and futures values are on a positive swing, some analysts claim that the current trend is not a reflection of true fundamentals, but only a temporary lift on the back of China’s stimulus purchases. Catherine Virga, a senior base metals analyst with CPM group does not agree. She believes that Chinese copper purchases are a strategic intention for their longer-term plans as opposed to just a temporary support for the market.
China’s imports of unwrought copper and semi-finished copper products rose to 329,311 tonnes in February versus 232,701 tonnes in the previous month, the General Administration of Customs said on Wednesday. The February imports climbed after the Lunar New Year holiday pushed down imports 19 per cent month-on-month in January to the world’s top copper consuming nation. China’s production of refined copper rose to 320,000 tonnes in February from December’s 304,100 tonnes, the National Bureau of Statistics said on Thursday. China’s output of refined copper rose 12 per cent on the month in February to a three-month high as smelters completed repairs and bought alternative feed to replace scrap metal. February’s output of refined copper was 320,000 tonnes, a rise of 18.4 per cent on the year. “The February output means China’s production is back on track,” Zhu Yanzhong, analyst at Jinrui Futures, a subsidiary of top producer Jiangxi Copper, said. Zhu added that March’s output could rise from last month as some producers were resuming production because tightness of scrap supply was easing.
In India copper futures edged lower on Thursday dragged by a rise in inventory levels at the London Metal Exchange and further pressured by a firm rupee, analysts said. LME copper stocks rose by 2,450 tonnes to 504,325 tonnes on Thursday. Chinese industrial data also acted as a drag on prices. China’s industrial growth ground to a record low at the start of the year.
Freeport-McMoRan Copper and Gold Inc (NYSE:FCX) CEO Richard Adkerson is not sure what to expect from the copper market in the coming months. Adkerson declined to forecast whether the drop in the copper price had bottomed out and said demand was still “very, very weak” in Europe, the United States and Japan. On Monday it was selling for $1.64 per pound, compared with more than $4 last July. In December, Freeport, the world’s number two copper producer, suspended its dividend, slashed capital expenditures by more than half and lowered copper output. It has also cut some workforces and delayed some mining operations to cut costs.
Adkerson said more production cuts would be needed if the price of copper would fall below $1.25 per pound. “I feel very good about what we’re doing right now … but those plans (production cuts) were developed with the scenario of $1.40 copper and if the price were to go below $1.25 copper we’d have to do other things.” Adkerson added that a change in the copper price depends on China, which had fueled the run-up in prices over the last few years as it built up its infrastructure.” They are building railroads, they are building power systems where copper is being consumed,” he said, noting that three-quarters of China’s economic stimulus package was going to construction projects.