>Copper: the doctor’s prognosis
Published: March 10 2011 20:03 | Last updated: March 10 2011 22:50
It should come as no surprise that the strong, positive correlation between the world’s two leading industrial commodities has broken down over the past month. Oil has surged 15 per cent on supply concerns while copper is off 9 per cent from the record high of $10,190 a tonne it hit in London trading in part due to fears of what dearer and scarcer crude might do to the world economy. But developments in the Middle Kingdom, not just the Middle East, are affecting copper prices.
China, by far the world’s single largest copper consumer, already outstrips the appetite of what some decades ago was called the “industrialised world.” Its demand for the red metal overtook that of North America and Western Europe combined in 2008 and analysts at Credit Suisse forecast it will be double their consumption by 2013, soaking up a third of all supply.
Given its projected needs for copper-intensive infrastructure, those forecasts seem consistent with economic growth expectations. Even so, the copper market may be ascribing an overly smooth and upward-sloping trajectory for demand in the medium-term. Chinese imports of all industrial commodities took a tumble last month due to the Lunar New Year celebrations, but copper’s fall seems especially sharp. Shipments of 235,000 tonnes were the lowest since January 2009 when prices were a third today’s level.
For some months, local inventories have seemingly grown faster than underlying demand and the discount between local and international prices would have suggested. Some analysts, noting that a large part of Chinese bonded copper inventories have been used as collateral for loans, believe that this artificially stimulated the surge in imports. If so then this could make copper demand doubly-sensitive to Chinese government efforts to slow down credit growth.
Known as “the only metal with a PhD in economics” for its forecasting prowess, perhaps “Dr Copper” was warning us of speculative froth as much as expected growth when it surged earlier this year. If so, more weakness seems likely.