Copper update: supplies going up and demand is ????

Some recent news on the copper fundamentals. 

A major strike at Codelco's mine lasted but a few days before the large bonus offered by management was accepted (Reuters, 2010 Jan 6)

Vale is restaring the Sudbury smelter which produces nickel and some copper. I don't have stats on how much copper it produces each day but the mine has been out of production since July.  It sounds like this strike will last a while and Vale is willing to bring in replacement workers.   (Reuters, 2010 Jan 7)

Note, from my research I believe the Vale / Sudbury mine is the ONLY copper mine out of action due to a strike. 

BHP's Olympic Dam slowdown due to equipment failure is due to be back up to full capacity by March 31,2010. Full capacity is estimated at ~600 / tons day. (BHP, 2009 October 8)  (BHP, 2009 November 6)  (Wikipedia)

All other major copper mines in the world appear to be running.  If you know of any that are not I'd appreciate an email.

Longer term, the Antamina mine recently won approval for expansion  (BHP, 2010 Jan 5)

On the demand side it is always difficult to know precisely, but copper inventories continue to rise.  The first quarter of the year is seasonally a strong time for copper prices.  I'll post more on the dynamics as I see it soon(tm)

Contrary Copper talk part 2

I recently blogged about the rising copper inventories worldwide.   Copper inventories keep growing at an accelerated pace.

So why are prices rising as well?  I see a few items driving prices higher right now, those being the dollar, an expectation for a recovering worldwide economy, and strikes at copper mines in South America.

The recovering world economy and China specifically has been the standard mantra for why asset prices are rising, whatever the asset.  If China is rebounding, why are Chinese copper exports rising?  If China has a desperate need for copper right now why are the traders sending copper out of the country?  Don't know, but this does not coincide with the bullish copper thesis. 

There have been several strikes in South America at copper mines and several large copper mines have their work contracts ending in the next two months (Reuters list) .   So far all the striking mines have gone back to work and contracts at some mines have recently been concluded. The long running (40+ days) BHP / Spence mine copper strike just ended.  (Bloomberg)   Spence mine produced about 500 tons of copper a day so you can add that to the 2000+ tons / day of excess inventory already going into inventories.

A recovering housing market has been the hope of copper bulls as well, but as you will note from my numerous housing posts I do not think new home construction will come roaring back in America any time soon.  I suggest you go to Calculatedriskblog for the full details on American housing.

I don't have any short positions on copper or copper miners as the momentum upwards is just too strong and it fits with the worlwide reflation theme.  When this theme ends I fear copper prices could revert lower if inventories keep rising.

Hey buddy, can you spare a city?

Ran across this on my daily blog troll.  I posted a while ago video by Hugh Hendry showing an empty skyscraper in China.  This video completely trumps such small matters as a single building, here's an entire city.... empty!



I spent some time on Google maps and found satellite photos of empty Ordos.  Wow. Scroll around and you will see just how big the place really is. Notice the new construction with no cars on the road or parked at the homes.   From the shadows it appears around noon time so you'd think there would be some activity, right?

I think there is a little bit of malinvestment going on in China.  When the populous does not have valid and efficient uses for their capital they end up buying apartments in empty cities.  Makes the chinese pig farmer hoarding copper look entirely rational, eh?   Like America property prices only go up in China, right?

Here's an article by the westerner interviewed in the video.

If this isn't a blatant example of a bubble, I do not know what is.  When this bubble finally bursts the world wide ramifications will be tremendous.

ht: zerohedge

Some contrary copper talk

There really isn't a commodity that hasn't gone up dramatically this year [edit: ok, I forgot about natural gas, it has dropped like a rock]  as a counter response to the dramatic fall in prices last year, a flood of central bank liquidity, and hopes for a strong worldwide rebound.  Copper has not disappointed.  At $3.00 / pound it is nearly back up to the $4 highs of 2008. 

Is this dramatic run up in copper prices justified? I'm beginning to wonder.  I began examining copper in an attempt to see if the inventory increases in oil were consistent with other raw materials.  Like oil, copper's inventories continue to rise worldwide.  As you can see from the graphs below inventories are steadily marching upwards worlwide. 

The graphs only go back 5 years but futher back inventories peaked (for COMEX + LME) at around 1,250,000 metric tons in 2002.  Copper was also around a buck a pound back then. Today the world is at at less than half that inventory figure.

What then is keeping copper prices so elevated? In the short term a serious equipment failure at BHP's Olympic Dam mine gave boost to copper and uranium prices.

I see two major longer term factors giving a lift to prices, the dollar and a mindframe of a recovering global economy.   The trend is also upwards and this market seems to be very much driven by technical trading more than anything else right now.  If the world economy does not rebound and the dollar stops dropping I think copper prices could rapidly reverse.

Right now I'm not really long or short copper or any copper producers, but I'm investigating further.  If copper inventories keep rising the bulls are going to have a harder time justifying prices at their current levels.

Simon Hunt has been extremely bearish on copper recently.

My skeptical view of the copper rally has also put me at odds with the Chinese pig farmer trading community. 

Many thanks to Sober Look for his assistance in acquiring some of this data.

Source:

Bloomberg - Chinese copper inventories

Kitco metals