SAN FRANCISCO (MarketWatch) —
Copper finished last year at about half the price it started with, but lately it’s been showing signs of life — and that’s thanks to China.
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.
Copper’s ‘bottom broke as all things liquid became part of last year’s general sell off, and mining shares sold off more heavily than metals did and with little regard to their underlying fundamentals.’
— David Coffin, HardRockAnalyst.com
So which is it?