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Monthly Copper Bulletin-FEB15

MARKET COMMENTARY  

Copper substantially outperforming in February, though prices remain 7% lower year to date, and 20% lower yoy after falling from $7,200/t in mid-2014 to $5,350/t in late January (-26%), copper has rebounded to $5,900/t during the course of February.

Not surprisingly, the best performers in last month were the ones that were severely oversold, with Brent, oil products and copper being the ones that responded the most. Brent finished at just over $62/barrel, up 18% on the month for its biggest monthly percentage gain since May of 2009. WTI managed a much more muted 3.1% advance, widening the arb between the two contracts to a one-year high. In the base metals group, copper enjoyed a very solid month, finishing up 7% for the period, but the rest of the metals failed to follow its lead and finished lower.

Equity markets finished on an impressive note in February, with both the S&P and the Dow establishing record highs, while NASDAQ closed just around the 5,000 mark, a level last seen in 2000 during the heady days of the dot-com boom.

In macro developments, the US Commerce Department reported on Friday that the economy grew at a revised 2.2% in Q4, weaker than the 2.6% first estimated last month, but consumer spending, which accounts for 70% of activity, expanded at a 4.2% clip, its best showing since 2006. Most economists expect US growth to rise above 3% in 2015, citing a general healing in the US job market as being the main driver.

In Europe, we saw an agreement reached last month with the Greeks that basically kicks the can down the road for another four months. The two sides will now try to reconcile significant differences during the interim period. Meanwhile, we have seen a modest improvement in several key European macro indicators, prompting the European Commission to raise its Euro-area growth forecasts to 1.3% in 2015 and to 1.9% for next year, up from previous projections of 1.1% and 1.7%, respectively.

Copper was pretty much alone among the LME metals in terms of price appreciation during Feb, tacking on about $400/ton during the period. We suspect that a number of factors were behind this increase, chief among them, a bout of short covering. Additional support came from expectations that with the Chinese returning from their New Year break, fresh buying would set in; as evidence of this, analysts pointed to a modest uptick in Shanghai premiums, along with slightly better Chinese macro numbers. On the supply side, there is growing evidence that output is being cut, especially by smaller miners from Chile. For one thing, despite the Chilean cutbacks, the country is still expected to produce more metal this year than last, this according to Cochilco and indeed, Chilean output in January was up some 13% from last year. In addition some of the larger producers (like Antofagasta) are lowering costs thanks to a stronger dollar and falling oil. We see this in LME stock levels, which rose by 45,000 tons in February, while Shanghai increased by 70,000 tons. In March, we could see copper trading between $5750–$6050 and don’t see the weekend rate rise out of China providing much sustained support.

London copper firmed today, after falling more than one percent in the previous session, as easier policies by European and Chinese central banks outweighed concerns over Chinese demand. Three-month copper on the London Metal Exchange edged up by 0.11 percent to $5,843.50 a tonne by 1400 GMT, paring a 1.39 percent loss in the previous session, which was its biggest daily loss since mid February. The most-traded May copper contract on the Shanghai Futures Exchange slipped by 0.7 percent to 42,510 yuan ($6,779) a tonne, but was off overnight lows of more than 1 percent. China's vice finance minister Zhu Guangyao said China's fiscal policy will remain proactive going forward, but added that deflationary pressure is not as intense as in Europe.



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Monthly Copper Bulletin-JAN15

MARKET COMMENTARY  

Copper prices retreated by 13% in January and lost a whopping $700/ton at one point over a two-day period. The selloff was attributable to reports of put accumulation and heavy selling by Chinese funds, along with indications of a growing Chinese slowdown. The forecast from an investment bank calling for a $5700 low for 2015 was promptly blown out of the water and analysts must now be zeroing in on lower numbers, particularly in light of the $5353 intraday low reached two weeks ago. The latest Reuters poll has prices averaging $6,362 in 2015 and $6,779 in 2016, but these were compiled before the latest selloff and will likely be revised.

Meanwhile, copper miners, among them, Codelco, Vedanta and Antofagasta have all announced capital spending or production cuts, but whether this will be enough to tip the market into a deficit from an expected surplus (estimated at 96,000 tons by the Reuters consensus), remains to be seen. Certainly, from what we are seeing so far, this does not look likely.

For one thing, Chile is stil expected to produce 6 mln tons of copper in 2015, higher than the 5.78 mln tons produced last year. Furthermore, LME inventories have been moving sharply higher since Jan 1st, (up some 50,000 tons) and we are seeing similar increases in Shanghai. For its part, China imported a record 3.59 mln tons in 2014, but much of this took place during the first half of the year (pre-Qingdao). In addition, a good amount of imports may be going into Chinese stockpiles, not exactly a source of fresh demand.    

Through all this, Chinese local production continues to grow – up some 14% y-o-y – and clearly outpacing local demand growth, meaning that imports will likely decline going into 2015. Despite this negative backdrop, we could see a steady period this month for copper as the market consolidates amid a short-covering rally and lingering expectations of a Chinese rate cut.

A $5350-$5800 trading range should prevail for the month.

London copper sank in this morning from two-week highs touched the session before as traders who bought copper on talk of fresh easing measures by China took profits after it cut its bank reserve requirements. China's central bank made a system-wide cut to bank reserve requirements on Wednesday, the first time it has done so in over two years, to unleash a fresh flood of liquidity to fight off economic slowdown and looming deflation.

"The market is not too fully convinced that this is the real deal in terms of boosting metals demand," said analyst Dominic Schnider of UBS in Hong Kong. "The focus remains on why they are doing this in the first place, and the focus is weak activity," he added. UBS expects copper to potentially test the $5,000 a tonne level.

Three-month copper on the London Metal Exchange had fallen 1 percent to $5,647 tonne. Prices hit the highest since Jan. 22 at $5,755 a tonne on Wednesday before closing with modest gains.

Physical demand remains weak ahead of Lunar New Year in China, traders said, with consumers reluctant to stock up given slowing demand growth and ample supply expected in the world's top user of metals.

Tempering appetite for risk, the European Central Bank abruptly cancelled its acceptance of Greek bonds in return for funding on Wednesday, shifting the burden onto Athens' central bank to finance its lenders and isolating Greece unless it strikes a new reform deal. 



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Monthly Copper Bulletin-DEC14

MARKET COMMENTARY  

Copper prices ended 2014 with a loss of 14 percent, their biggest annual decline in three years, on concerns that a supply surplus will hit the market just as Chinese economic growth shifts down another gear.

Losses in copper, the most widely followed metal, were matched by tin and exceeded only by lead - a market that was in surplus in the year to September - while nickel was the best-performing metal thanks to Indonesia's ore export ban.

Copper prices came under siege shortly after Qingdao, as the scandal removed the need for thousands of tons of copper to come into China as a financing proxy. To illustrate, in the four months prior to Qingdao, imports of refined copper reached 1.3 mln tons, up a whopping 56.1% y-on-y. A few months later, imports were running at about 10-20% below year-ago levels. The termination of the Qingdao financing option coincided with a sharp slowing in Chinese economic growth, with this one-two punch taking a toll on overall demand as well.

Year-end adjustments to market positions helped copper bounce off 4-1/2-year lows of $6,230 a tonne earlier the first week of new year, but it resumed its decline on Wednesday, ending down 0.41 percent on the day at $6,299 a tonne.

Copper prices slid to their lowest in 5-1/2 years today, triggered by a wave of stop-loss selling following a downward revision to global growth by the World Bank and big falls in oil prices. Benchmark LME copper plunged more than 8 percent at one point as traders slashed positions to limit losses, while Shanghai copper prices hit their "limit down" after falling 5 percent. LME copper prices had fallen to their lowest since July 2009 at $5,353.25 a tonne in intraday trade. By 1303 GMT, prices had pared losses to trade at $5,580 a tonne, still down 4 percent.

Selling also spilled into other metals, with lead hitting 30-month lows, while zinc and aluminium tumbled to nine- and eight-month lows respectively. "The market was very worried about slowing growth anyway so last night's big downward revision to global growth by the World Bank has probably stoked that fear," said Gayle Berry, an analyst at Jefferies Bache.

Oil prices fell 1 percent, extending a rout that saw prices touch a nearly six-year low in the previous session. Oil prices have lost more than 13 percent so far in January, in the longest losing streak for one year.

The World Bank lowered its global growth forecast for 2015 and next year due to disappointing economic prospects in the euro zone, Japan and some major emerging economies that offset the benefit of lower oil prices.

According to brokers Marex Spectron, speculative short positions in copper grew by 21,000 lots to 74,000 lots in the week leading up to 8th January. This represented a short of 47 percent of open interest, the largest speculative short in copper since October 2008, they said. Copper traders had been nervously eyeing two big put option trades at $6,000 and $5,500 per tonne, which they feared could accelerate the market's longest rout in years, they said this week.

Weighing on the metal this year, the global copper market is expected to record a surplus of about 390,000 tonnes in 2015, according to an industry group. That would follow five straight years of deficit.

There are also worries about demand in China, which consumes some 45 percent of the world's copper. Data on Wednesday showed activity in China's factory sector shrank for the first time in seven months in December, highlighting the urgency behind a series of surprise easing moves by Beijing in the past two months.

A top Chinese government think tank said this week that it expects economic growth in the country to slow to 7 percent next year from 7.3 percent this year. 



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Monthly Copper Bulletin-NOV14

MARKET COMMENTARY  

Commodities continued to lose ground over the course of November, with oil staging one of its most dramatic monthly declines in years. In the metals group, the LME complex ended the month mixed, but copper proved to be the exception, collapsing to eight-month low on Friday and now within striking distance of its 2014 trough.

Copper shed $200/MT on the last day of the month. Clearly, the recent collapse in oil is impacting the complex, already under pressure on account of China-related growth concerns. The macro deceleration in China has prompted the government to drop rates for the first time in two years and many are saying that more cuts are on the way. On the trade side, Chinese refined copper imports rose to 305,772 tons in October from 292,620 tons a year earlier, continuing a multi-month recovery. However, this uptick is occurring against rising local production, now at 732,000 tons in October, up 13.61% from a year earlier. Participants also continue to guess about SRB purchases; the Bureau reportedly bought 500,000-700,000 tons of copper through 2014, well above target, but its actions are doing little to turn the market around. In the meantime, the latest ICSG report shows an 83,000-ton surplus in August compared to a 40,000-ton surplus in July. So we expect copper to trend lower in December, pressured by the continued strength in the dollar (particularly against the yen), lackluster Chinese macro data, more concentrate supply, a wobbly energy complex and poor technicals. On the latter point, should prices break below the March 2014 intraday low of $6321, we could set up an eventual decline to $6,000. On the upside, we see resistance at $6650.

London copper edged lower in this session, under pressure from dollar strength and uncertainty over demand for industrial metals, although falls were limited by data showing the services sector in China grew marginally faster in November.

A buoyant U.S. dollar contributed to a fall in the euro to its weakest level in more than two years, which put pressure on metals prices. A strong dollar makes commodities priced in dollars more expensive for holders of other currencies.

Three-month copper on the London Metal Exchange (LME) fell 0.7 percent to $6,360 a tonne in official trading.

The metal, which is used in power and construction, fell to a 4-1/2 year low of $6,230.75 a tonne on Monday, tracking a slide in oil prices. It is down more than 13 percent in the year to date.

Helping to prevent further falls, China's services sector grew marginally faster in November, surveys showed, a welcome respite after a run of underwhelming data from the world's top copper consumer as it faces its worst slowdown in at least six years.

But analysts said credit difficulties in China were keeping bargain-hunting in check.

"It just seems like there is so much less activity because of the credit constraints in China," Morgan Stanley analyst Joel Crane in Melbourne said.

 

 

 



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Monthly Copper Bulletin-OCT14

MARKET COMMENTARY

Unlike many other commodities that got hit in the aftermath of a stronger dolar and surging US equity markets, base metals held up fairly well in October. Copper was a case in point, finishing slightly higher on the month after rebounding from a five-month low of $6530. We suspect the firmer tone was due to a number of things, one being the significant revision by the ICSG on its supply/demand balances. The Group now says that the market will be in a deficit of 270,000 tons this year before switching to a surplus of about 390,000 tons in 2015. In addition, both LME as well as Shanghai inventories have been trending lower for much of the year, not indicative of a well-supplied market. Meanwhile, Chinese trade numbers for September show refined copper imports bouncing to a five-month high (despite local production soaring to a new record), but the report did not have much of an impact, as the talk was that the copper could be getting reexported in product form.

Copper came under heavy pressure this morning. Interestingly, the copper spreads eased with the weakening price suggesting a degree of panic in the move. The latest LME data stil show the presence of a dominant position holder of cash and tom warrants.

Copper fell to a two-week low in this afternoon on worries over slowing growth in Europe and China, a surging dollar and weakening oil prices, though losses were kept in check by supply delays in Peru. Three-month copper on the London Metal Exchange fell to $6,543.50 a tonne, before recovering slightly to trade at $6,584 in official rings, down 1 percent.

The dollar rose to a seven-year high against the Japanese yen after a victory by Republicans in the U.S. mid-term elections, while Brent oil dropped to a new four-year low below $82 a barrel. A strong dollar makes dollar-priced metals costlier for non-U.S. investors.

On the demand side, China's state power grid, its biggest buyer of copper, is set to roll out more power lines. China has begun construction of a large-scale, ultra-high voltage power project, which will help alleviate air pollution problems, the State Grid Corporation of China said on Tuesday.



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Monthly Copper Bulletin-SEP14.pdf

MARKET COMMENTARY 

In September the commodity group has been pressured by a stronger dollar, has staged a meteoric rise over the past three months and is now at a fouryear high against a basket of major currencies. In addition, a rebound in US equity markets continues to siphon money away from commodities. Weaker macro numbers, particularly out of China and Europe, have not helped commodity demand either. In the non-ferrous space, copper had its biggest monthly loss since March and there was widespread weakness in nickel and aluminum prices as well.

The stronger dollar was a common theme that unhinged many metal complexes last month, but copper was also weighed down by demand concerns emanating from China. To wit, the China’s manufacturing activity is basically dead in the water, with the official HSBC PMI number coming in at 50.2 in September, flat vs. August, while the official PMI was at 51.1, unchanged from last month. Moreover, Beijing’s various ministimulus programs seem to have failed to revive borrowing, even at low rates.

Copper and other base metals rebounded on Thursday after U.S. central bank authorities signalled they would not rush to boost interest rates, extending a period of cheap capital for industry and investors. The London Metal Exchange (LME) saw gains across the board, joining broader financial markets in responding to the release of the minutes of the last Federal Reserve policy meeting.

The dollar fell and stocks soared as investors factored in a longer time frame before any rate rises. The dollar had enjoyed 12 consecutive weeks of gains since early July, the U.S. currency's best run in more than 40 years. The strong dollar had weighed on commodity markets, making dollar-priced materials more expensive for European and other non-U.S. investors.

"It was a surprise, definitely everyone thought the dollar strength would go in one direction," said Eugen Weinberg, head of commodity research at Commerzbank in Frankfurt.

Three-month LME copper gained 1.2 percent to $6,712 a tonne by in official midday trading, erasing the prior session's small losses. LME copper is climbing away from 5-month lows at $6,600 a tonne tapped on Oct. 2.

 


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2014-August

MARKET COMMENTARY  

Copper dropped 2.2% in August, its biggest monthly dip since March. The complex was weighed down by demand concerns after a steady stream of disappointing data came out from both Europe and China of late. Although US manufacturing readings remain strong, Chinese and European figures have clearly disappointed, with the latest European number (out this week) now on the verge of contraction. With regard to trade data, China’s July refined copper imports fell 16.7% on the year, as the fallout from slower demand and the port scandal both take their toll. However, we should note that rising local production is also eating into the import share; Chinese refined production is now at a little over 630,000 tons in July, up 16% from a year ago.

Elsewhere, Chile’s copper output is also moving higher, up 2.4% to 3.33 million tons during the Jan-July period. State commission Cochilco is forecasting that the country will produce 5.95 million tons this year, slightly higher than last year. Separately, the latest data from the International Copper Study Group shows the global refined copper market in a 69,000-ton deficit in May, down from a 186,000-deficit in April. For the first 5 months of the year, the ICSG sees the market in a 466,000-ton deficit compared with a 251,000-ton surplus in the same period a year ago.

London copper drifted on Wednesday in low volume trade, with expectations of fresh supply weighing on prices and dampening investor interest. But predictions of fresh monetary support from the European Central Bank kept metals with tighter supply outlooks such as aluminium and zinc underpinned near their recent respective highs of 18 months and four weeks. Three-month copper on the London Metal Exchange was little changed at $6,921.25 a tonne, after logging a small gain in the previous session.

Expectations for further policy action at the European Central Bank's meeting on Thursday are running high after ECB President Mario Draghi pledged to use all available tools to keep prices in check.



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2014-July

MARKET COMMENTARY  

Copper had a V-shaped move over the course of the last month; after plunging to a low of just over $6600 in mid-June on account of jitters emanating from the Chinese port scandal at Quindao, prices shot up by about $600 a ton over the next three weeks.

We think a combination of variables set up this advance, with the most important being growing perceptions that the financing irregularities evident at the port were likely localized and not symptomatic of a larger problem. The second variable kicking off copper’s rally are increasing signs that the Chinese economy seems to be improving, as evidenced by rising PMI readings. Thirdly, copper inventory levels remain low, with draws continuing in both the LME and Shanghai exchanges. Finally, latest data from the ICSG has the global world refined copper market showing a 83,000 tons deficit in March compared with a 2,000 ton surplus in February.

London copper steadied today, but remained under pressure near two-month lows after new home prices in top metal consumer China fell in July for the third month in a row. Price falls in new homes also spread to a record number of Chinese cities including Beijing, underlining a worsening property downturn that is increasingly dragging on the broader economy.

Three-month copper on the London Metal Exchange was $6,874 a tonne from $6,870 at the close on Friday. The price fell by 1.8 percent last week, touching a seven-week low of $6,821 on Thursday, its lowest level since June 23.

"Base metals are under pressure this morning, although flows have been relatively light," Vicky Sanders, head of analytics sales at Marex Spectron in London, said in a research note.

ANZ strategist Daniel Hynes in Sydney views copper as oversold and that prices are getting to "relatively attractive levels". "In our view, fundamentals are improving, which opens up the scenario of upside surprise, if some of these outlying macro issues start to rectify themselves," he added.

Nevertheless, hedge funds and money managers slashed their bullish bets on copper futures and options in the latest week, the Commodity Futures Trading Commission said on Friday, as concerns resurfaced over the strength of global economic growth. 



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2014-June

MARKET COMMENTARY  

Copper had a V-shaped move over the course of the last month; after plunging to a low of just over $6600 in mid-June on account of jitters emanating from the Chinese port scandal at Quindao, prices shot up by about $600 a ton over the next three weeks.

Copper moved in range of $6615-7025 last month. U.S. consumer sentiment rose in June as consumers remained optimistic the sluggish first quarter was due to difficult winter conditions. Euro zone economic sentiment fell unexpectedly in June on fears that fighting in Iraq would push up oil prices and that any escalation of the Ukraine crisis could drag on euro zone growth. On domestic bourses weaker local currency capped the downside to some extent.

Supply short fall and encouraging data from US and China will continue to assist the prices in the month of July 2014. The HSBC/Markit Flash China Manufacturing Purchasing Managers' Index rose more than expected to 50.8 in June from May's final reading of 49.4. Copper in LME is set for the biggest quarterly rise since September as stockpiles fell and amid bets that the U.S. economy will rebound from a first quarter contraction. Inventories monitored by the main exchanges in London, Shanghai and New York have plunged to the lowest since 2008. Copper seasonal demand is expected to wane going into the third quarter, though the shortage in supply is expected to keep a flor under prices.

Copper edged further off 4-month peaks today as investors took profit and stocks rose for a second day running, though lingering supply concerns put a strong floor under prices. London Metal Exchange data showed stocks rose by 2,850 tonnes - a second straight day of gains - though overall, stocks remain near their lowest levels in six years, supporting prices.

Three-month copper on the London Metal Exchange was last bid at $7,115 a tonne in official midday rings, down 0.49 percent. Copper closed down on Friday but still posted its biggest weekly rise in more than nine months, after touching a four-month peak earlier in the session.

Investors are waiting to see if record share prices will be justified by quarterly earnings reports and forecasts in the United States and elsewhere, with aluminium producer Alcoa kicking off the U.S. earnings season on Tuesday.

On the demand side, global economic activity should strengthen in the second half of the year and accelerate in 2015, although momentum could be weaker than expected, International Monetary Fund chief Christine Lagarde said on Sunday, hinting at a slight cut in the IMF's growth forecasts.

China's economic growth quickened in the second quarter from the previous three months, but further modest government support measures will still be needed, Premier Li Keqiang said on Monday. 



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2014-May

MARKET COMMENTARY 

Copper had a strong showing in May, with prices rising 3.1%, the best monthly gain since December. The advance was helped by a tight supply picture, best evidenced by widening LME backs and dwindling stocks. LME holdings, for example, now stand at 166,000 tons, off a whopping 60,000 in May alone, while Shanghai has shed some 15,000 tons over the period. Not surprisingly, premiums are strong, although there have been signs of softening this past week in China. Prices got an additional boost from the closure of LS-Nikko Copper’s No. 2 plant in South Korea, which is out after a steam explosion in May. Having said that, there will be additional supplies coming into the market, with most estimates still calling for a 2014 supply/demand surplus. In view of all this, the ICSG sees the global world refined copper market in a 5,000-ton-deficit through February following 123,000 ton shortfall in January; CRU also has the market as in deficit for Q1.

London copper edged up on Friday but was still set for its third-straight weekly loss as seasonally strong demand from China passes its peak and on concerns about the pace of growth in the world's No.2 economy.
 
As well as weaker technicals for copper as it moves through the seasonally strongest second quarter for demand, traders also likely locked in profits ahead of the financial year end, said analyst Tim Radford of Sydney-based advisor Rivkin. "We took profits today and we're pretty happy to be out, but given the strong support we have seen at current levels on copper, buyers may enter as the second half gets underway."
 

Three-month copper on the London Metal Exchange had inched up 0.5 percent to $6,651.50 a tonne, from the previous session when it closed down 1 percent and dropped to a six-week low of $6,620 a tonne.

China's new bank lending and money supply rose faster than expected in May, as the government ramps up policy stimulus measures to energise a slowing economy.

U.S. retail sales rose less than expected in May and first-time applications for jobless benefits increased last week, but the data did little to alter views the economy was regaining steam.

Euro zone industrial output rebounded with a twice-as-strong as expected monthly rise in April thanks to energy and non-durable goods production, official data showed on Thursday, pointing to an acceleration of economic growth in the second quarter.

Chief executives of Freeport McMoRan Copper & Gold Inc and Newmont Mining Corp are both in Indonesia's capital, marking what might be a last-ditch effort to resolve a dispute over a mineral export tax before a new administration takes over in October. A stoppage of copper concentrate exports from the country has put the brakes on a mine surplus expected to cap prices of copper the year. 


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