That doesn't necessarily mean that the 4 trillion yuan ($585 billion) stimulus plan for the world's largest copper-consuming country is working, but analysts are starting to be a bit more upbeat over the metal's prospects.
On Thursday, copper prices climbed to a four-month high of nearly $1.90 per pound on the Comex division of the New York Mercantile Exchange.
Chinese demand for the industrial metal had fallen sharply back in the final quarter of 2008 as "a result of the global downturn, which left no region or country unscathed," said Martin Hayes, an analyst at BaseMetals.com.
But China introduced financial stimulus plans in November, which are expected to kick in later this year and through to 2010 in "massive infrastructure projects," he said. Those projects "will use significant tonnage of base metals, including copper."
Already, China's imports of copper and alloys climbed 55% in February from January, said Sean Brodrick, a natural-resources analyst at UncommonWisdomDaily.com, who cited China customs data.
China's construction typically picks up after the winter, lifting demand for copper, which is used in pipes and wires, he said.
And Beijing's State Reserves Bureau has "embarked on a well-publicized copper purchase program this year -- buying metal from international markets to store in strategic stockpile," said Hayes. That's several hundred thousand tons, between 300,000 and about 700,000, he said.
Cary Pinkowski, chairman of Vancouver, Canada-based CP Capital Group, said China was "waging a silent economic war, spending hundreds of billions of dollars to secure long-term supplies of the items essential to economic growth."
Path of logic
But the reason behind China's efforts to boost its copper reserves is as opaque as it is important.
Copper's "often called 'Doctor Copper' because it takes the temperature of the global economy," said Brodrick. "According to Doctor Copper, things are improving, mainly due to Chinese demand."
London Metal Exchange warehouse stocks of copper have fallen about 10% over the past month, from four-and-a-half-year highs of 548,400 tonnes on Feb. 25, to 493,450 tons last week, according to BaseMetals.com's Hayes.
Prices on the LME have reacted accordingly, he said -- with prices climbing from December's low of $2,817.25 per tonnes, the lowest in four years, to $4,135 as recently as Monday.
China alone is reported to have consumed more than 1 million tonnes of copper in the first two months of the year -- a year-over-year increase of 38%, according to Sam Subramanian, editor of AlphaProfit Sector Investors' Newsletter.
"While some of this growth may be attributable to China's stimulus plan, commercial stockpiling and reserve buildup boosted the aggregate demand number," he said. "Strength in end-use demand for copper from the U.S. stimulus plans is yet to emerge."
Meanwhile, "the Chinese may just be replenishing their supplies on the cheap, in which case they'll stop buying soon -- or they may have real demand sparked by their $585 billion domestic stimulus program," said Brodrick.
For China, the rebuilding of the stockpiles are "partly to support its smelters, partly strategic thinking about long-term supply and partly turning over excess dollars in return for commodities that look cheap to them right now," said David Coffin, co-editor of HardRockAnalyst.com.
Kevin Kerr, editor of Global Commodities Alert, said it's really "bargain hunting and planning ahead by stockpiling several commodities, not just copper, but oil and grains too."
"So while this precious time of low prices is available, China is taking full advantage for when high prices return, and of course they will," he said.
Building a foundation
So far, the picture on copper isn't all that pretty.
By October of last year, copper prices had dropped half of their value from the record level of about $4.27 per pound in May, and it was around that time that many experts in the copper market were predicting a bottom to the market.
See archived Commodities Corner on copper."That bottom broke as all things liquid became part of last year's general sell off," said Coffin.
Indeed, copper wasn't quite done with its decline. Prices continued to drop all the way down to about $1.30 in late December 2008, the weakest price level seen since 2004.
At the same time, "mining shares sold off more heavily than metals did and with little regard to their underlying fundamentals," said Coffin.
And Brent Cook, author of investment letter Exploration Insights, argued that the recent gains in copper prices may not be fundamental demand driven by consumption. "The global building and construction market is not improving," he said. "If anything, [it] is still getting worse -- ditto automobiles."
"I believe we are seeing a combination of a bear market rally, short-covering rally and restocking by the Chinese who have a real incentive to turn their U.S. dollar into hard assets," said Cook, who is also a geologist.
So right now, it's a matter of figuring out whether real industrial demand will emerge in the West or China as a result of the stimulus packages to keep prices high, and to "what degree will inflation buying of base metals emerge with continued weakness in the dollar," said Nick Jonson, an associate editor of Platts Metals Week.
That makes for a very uncertain market.
"The markets are still too volatile to lay out meaningful price expectations," said Coffin.
When it comes to base metals, focus on copper and "keep an eye on changes to the London Metal Exchange stockpiles for evidence of shifts to both mood [and] supply/demand balance," he said. Also, "look for copper price weakness before accumulating copper companies further."
'Copper has always been a leading element during growth, and we expect it to continue to be.'
— David Coffin, HardRockAnalyst.com
Stronger companies in the copper sector are trading at significant premiums to mid-October levels, he pointed out. First Quantum Minerals (CA:FM: news , chart , profile ) , for example, is trading about 60% higher than its mid-October price.
AlphaProfit's Subramanian said shares of Freeport McMoRan Copper & Gold
(FCX:
Freeport-McMoRan Copper & Gold Inc
Last: 42.12-0.93-2.16%
FCX42.12, -0.93, -2.2%) and Southern Copper
(PCU:
southern copper corp com
PCU18.61, -0.31, -1.6%) offer good ways to play the copper cycle, but "I would wait for a double-digit pullback in FCX or PCU before putting money to work," he said.
With further volatility on tap, "looking for weakness to add to positions makes most sense," said Coffin. "Copper has always been a leading element during growth, and we expect it to continue to be."
Myra P. Saefong is MarketWatch's assistant global markets editor, based in Tokyo.