Copper Heading to Fresh Peaks on Strong Demad from China; Aluminum is a Coiled Spring!
The story below interests me for several reasons:
1. I am keeping a constant eye on demand from China. While I agree with the Rio Tinto economist's opinion that China has essentially decoupled from the west, I am taking nothing for granted in this complex global economic crisis. Every credible report that indicates strong medium-term demand from China is like nod from the lifeguard that it's still safe to swim in the soft metal waters. I've been seeing a lot of similar mutually-reinforcing reports lately, so I'm feeling great about the status of metals demand from China at least through 2009, and likely through 2012 unless the picture changes drastically.
2. I just published an article about the prospects for higher copper prices yesterday afternoon. Did you catch it? Please click here if not, and then return. The price is near its peak now even though China has been out of the market for several months drawing down a huge supply they purchased at cheaper prices. Globally, there is only a few weeks' supply of copper available, so renewed buying from China will likely tip the scale into deficit.... and we recently saw what supply deficit did for coal prices.
3. Aluminum. This article provided further confirmation of everything I presented in my recent article on Aluminum, plus the added news that the top 20 Chinese aluminum producers are cutting production by 5-10% in order to conserve electricity and drive up aluminum prices. Wow. Remember, ACH is a state-run enterprise. This is not a voluntary hit to their bottom line, but rather a reflection of the severity of the coal/electricity shortfall in China, and a strategic move to cause a quick upward correction in the price of aluminum to make the business more profitable in a hurry. ACH remains my strongest buy recommendation outside of precious metals, and if the market were to punish shares on this announcement of production cutbacks, that is your double-down time. :)
INTERVIEW-UPDATE 1-Rio Tinto sees copper price at fresh peaks
(Adds quotes, details)
By Humeyra Pamuk
LONDON, July 10 (Reuters) - Copper prices could hit fresh record highs this year as the Chinese economy continues to expand despite a slowdown in the United States, the chief economist of miner Rio Tinto said on Thursday.
"I think the conditions still exist for yet another peak in the prices of most metals," Vivek Tulpule, chief economist of the world's second largest miner by market capitalisation, told Reuters in an interview.
Asked whether copper prices, which hit a record high of $8,940 per tonne last week, could surge to further peaks this year, Tulpule said: "Yes."
Industrial action at the world's top mines pushed copper to record highs, but the demand from China, where the market looked to take up the slack amid a U.S. slowdown has been weak so far this year.
This is due to the stocks they've built and once those stocks are depleted -- as the underlying demand remains robust -- the Chinese are likely to come back to the market, Tulpule said.
"Supplies remain constrained and there's scope for demand pick up once the Chinese stocks, which have been built in the past, are taken away ... In a few months time, there will be conditions for strong buying," he said.
Tulpule said he believed the Chinese economy was "decoupling" from the West, and that it would still grow strongly despite a slowdown in the United States, ensuring strong demand for metals.
"The Chinese economy is pretty resilient to U.S. slowdown ... We don't see a big effect coming back into commodity markets," he said.
Another bull market could be aluminium. Tulpule said a shortage of electricity was a key issue for the market for energy-intensive aluminium, and it was affecting production.
"People are worried about supply disruption associated with electricity suplies...I don't think that dynamic is going away."
Tulpule's comments were confirmed by reports from China, where the top 20 aluminium producers will cut production 5-10 percent from July to push up prices and reduce power consumption. [ID:nSP157888]
The news pushed aluminium to a fresh record high of $3,350 per tonne, exceeding a previous all-time high touched earlier this week.
Rio Tinto managed to secure a record price hike -- up to 96.5 percent -- in this year's iron ore contract talks with the Chinese steelmakers as the bottleneck in iron ore shipping continued to buoy prices.
"We've had a very good price rise this year, entirely consistent with fundamentals," Tulpule said, but he declined to predict how much the price hike would be for next year.
The demand for steel, particularly in China, was strong with the construction boom going on and a shortage of key raw materials meant higher prices in the years to come, he said.
"What we see over 1-3 years is pretty robust conditions ... In the long run prices are probably going to be much higher."
(Reporting by Humeyra Pamuk; editing by Peter Blackburn)