Commodities | Jun 20 2008
By Chris Shaw
Copper has again been going through a period where the supply side of the market failed to live up to expectations, with production losses in Peru the latest example of output falling short of what the market had factored in. But as Barclays Capital points out demand too has been weak lately, as a result of seasonal factors, and as a result the metal price response has been muted.
In terms of whether prices move higher going forward it is the demand side that holds the key in the group’s view and here China is one again the most important determinant, especially as recent demand for refined copper imports has been down on the back of some signs of slower economic growth.
But as Barclays notes much of the weaker import demand can be explained by de-stocking by local consumers, reflected in the fact output of copper semi-fabricated products has risen 14% in the year to April and the metal to produce these products has had to come from somewhere.
This leads the group to suggest a rebound in import demand is on the cards and can be expected before too long, as on its numbers copper demand in China should continue to grow at between 10-11% annually. At the same time the tight global concentrates market will constrain domestic refined production growth, further exposing Chinese smelters to the spot concentrate market.
As well Barclays notes the Chinese copper scrap market is also continuing to tighten, pushing prices to levels where refined copper becomes a more attractive option for some consumers. As a result the group expects Chinese copper imports to move to a greater portion of refined metal in coming months, which in turn will push up LME prices.
While this may take some time to flow through the group expects cash prices for copper to average US$9,000 per tonne in the fourth quarter of this year, which compares to a current price of around US$8,385 per tonne.
