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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