COLUMN-'Dr Copper' may be favouring fundamentals over trade politics: Russell
(The opinions expressed here are those of the author, acolumnist for Reuters.)
By Clyde Russell
LAUNCESTON, Australia, Nov 19 (Reuters) - Are themuch-lauded predictive capabilities of copper starting to showthat the divide between China and the United States on trade andinvestment, which was on full display at the weekend meeting ofAsia-Pacific leaders, no longer matters?
The failure of leaders of the 21-member Asia PacificEconomic Cooperation (APEC) to agree on a joint communique forthe first time in the group's history after the summit in PapuaNew Guinea was blamed on the tensions between the United Statesand China. Trade was blamed for the inability to reach a consensus, andthat's hardly surprising given the ongoing stoush between U.S.President Donald Trump and Beijing over trade tariffs, which hasresulted in downgrades to Chinese economic growth.
The outcome of the APEC meeting would normally be viewed asa bearish indicator for copper, given escalating trade tensionsare likely to have a negative impact over the medium to longerterm for the industrial metal.
However, in recent weeks there are signs that the coppermarket is starting to shrug off political concerns and focusmore on supply and demand fundamentals.
Copper is often viewed as an early indicator for economichealth, hence its nickname as 'Doctor Copper', the base metalwith a doctorate in economics.
Copper for delivery in three months time on the ShanghaiFutures Exchange was largely steady in early Asiantrade on Monday, managing to hold onto recent gains.
It rose as high as 50,240 yuan ($7,239) a tonne in earlyMonday trade, up 6 percent from its year low of 47,370 yuan onSept. 5.
London three-month copper futures closed at $6,205 atonne on Nov. 16, up 7.5 percent from their year-low of $5,773,reached on Aug. 15.
While London copper is down 14.4 percent so far this year,and Shanghai by 13.4 percent, both have staged modest recoveriesin recent weeks, despite the ongoing U.S.-China trade warrhetoric, declines in global equity markets and slowingindicators such as weaker Purchasing Managers Indexes (PMIs).
FUNDAMENTALS TO THE FORE?
Instead the copper market appears to be focusing more onsome tighter indicators on the supply side, and still strongdemand from top consumer China, with the expectation that thiswill continue as Beijing takes steps to boost the economythrough stimulus spending on infrastructure.
In the first major deal between a Chinese smelting companyand a copper miner, it's believed that Jiangxi Copper and Antofagasta have agreed 2019 coppertreatment and refining charges (TC/RCs) at $80.80 a tonne and8.08 cents a pound.
The charges agreed between Jiangxi and Antofagasta are downfrom the 2018 benchmark of $82.25 a tonne and 8.225 cents apound, Reuters reported on Nov. 15, citing three sourcesfamiliar with the agreement. Lower TC/RCs are normally an indicator of a tighter market,either through a lower supply of unprocessed ore or throughincreased smelting capacity.
China's imports of unwrought copper did drop in October fromSeptember, declining by 18.7 percent to 423,000 tonnes, whilethose of copper ores and concentrates fell by the samepercentage to 1.57 million tonnes.
However, for the first 10 months of the year, China'sunwrought copper imports are up a robust 17.2 percent, whileores and concentrates have jumped by 19 percent.
There are also a few signs of tightness in inventories, withShanghai stocks dropping 5.3 percent to 134,744tonnes in the week to Nov. 16, less than half of what they werein late March.
Headline inventories in London Metal Exchange warehouses dropped by 5,425 tonnes to 161,025 tonnes lastweek, nearing last month's 10-year low of 136,675 tonnes.
It's not unusual for copper, or indeed any major commodity,to become embroiled in a tug-of-war between what fundamentalsare pointing to and what political risk is saying.
Right now, copper seems to be paying more heed to signs ofemerging tightness in the market than to the risks posed by thetrade spat and a more general slowing of global growth.
However, before becoming too bullish on copper, it's worthbearing in mind the industrial metal has a solid correlationwith the China PMI, and the official measure has been trendingweaker since May, and at 50.2 in October, was only barely abovethe 50-level that separates expansion from contraction.
If the China PMI turns higher in coming months on the backof Beijing's stimulus, then copper's recovery should beconfirmed.
(Editing by Joseph Radford)
Messaging: clyde.russell.thomsonreuters.com@reuters.net)) Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.  |