Copper riding high on supply threat, limited inventory
It is popularly believed that copper price performance in recent months has been more because of threat to supplies and limited inventory with the exchanges. The demand side has largely been overlooked. No doubt, the copper market has been buoyant most parts of the current year primarily because of a spate of strikes that hit mines in different producing countries (Chine, Mexico, Peru, Canada, Zambia) that created uncertain supply conditions which in turn helped copper prices (cash) remain above $ 7,800 a tonne. Inventory levels have been rather low which again caused the market to remain concerned about supplies and potential supply losses. Even a slowdown in Chinese buying did not dampen the sentiment.
Supply improves
Interestingly, the performance of the supply side relative to expectation has improved so far in 2007, despite strikes. The recent trend of above-average output growth is set to continue this year, and recent problems have not deprived the market of much metal, Barclays Capital Research pointed out in its latest report.
The overall growth in supply has been strong since 2004 with annual refined copper output staying well above the 10-year average. The year 2007 would be no exception.
Demand looking up
The real story in copper this year has been not lost production due to strikes, but resurgence in copper demand in China, which is the main contributor to what is already looking like another strong year for copper demand, the report asserted.
Pointing out that following a quieter period over the past few months, local Chinese prices are gaining relative to the LME again, Barclays said. Anticipation of a resurgence in Chinese buying of copper may be enough to tighten copper market fundamentals and keep prices supported over the coming months, but recent
production losses are not.
Source: Hindu Business Line
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