TORONTO: Tightness on the supply side is improving profit margins for copper on the world market after prices dipped in the spring.
LME copper prices were resilient in July, according to Scotiabank’s Commodity Price Index. They rallied from US$2.95 per pound in June to US$3.05 in July and were as high as US$3.38 on Aug. 19, yielding a 56% profit margin.
LME copper stocks have plunged by more than 27% since February.
Scotiabank said China’s economy, which accounted for 39% of world copper consumption last year, is likely to slow in the third quarter from 10.3% year over year in the second quarter, but consumption estimates are being revised up.
“Huge spending on copper-intensive power infrastructure on the state grid in rural areas will continue through 2012 (12 bn RMB),”said Patricia Mohr, vice-president, economics and commodity market specialist at Scotiabank. “Beijing has also renewed the home appliance subsidy scheme and is promoting electric cars, which are twice as copper-intensive as conventional vehicles.”
She said there is also a growing recognition that copper supplies are fundamentally tight, given there has been almost no increase in world mining capability over the past five years and ore grades are declining at major producing mines.
“While new mine development will begin to ramp up in 2011, it will not be until 2012 that it has a significant impact. The net result, world supply/demand conditions for copper are in deficit in 2010, with the deficit likely to grow in 2011,” she said.
As a result, the LME copper price forecast has been revised up to US$3.20 for 2010 and US$3.35 for 2011.
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