Baltic Dry Index 601 -09 Brent
Crude 62.10
Trump 25 percent
tariffs 19 days away. Brexit 49 days
away.
Copper is a chemical element with
symbol Cu and atomic number 29. It is a ductile metal with very high thermal
and electrical conductivity. Pure copper is soft and malleable and is used as a
conductor of heat and electricity.
This weekend, as we
await the outcome of next week’s epic Battle of Beijing between America and
China in their trade war, something a little different.
With Europe and China
slowing, and the USA just under three weeks away from imposing punitive tariffs
on Chinas exports to the USA, are we on the cusp of the next recession? Time to
look for an answer from “Dr. Copper.” For as goes copper usage, so goes the Chinese
economy and with it the global economy.
The trouble is that
right now Dr. Copper is sending out a confused message. A message about to get
more confused by unusually heavy rains affecting copper production in Chile and
Peru.
With a massive global
switch to electric vehicles coming next decade, long term demand for copper
seems pretty mush assured. But that’s little comfort if we are entering a new
global recession. Distant water dies not put out a fire, as the old adage goes.
To “as goes copper so
goes the economy,” I’ll add “as goes next weeks USA v China trade talks in
Beijing, so goes copper,” at least in the short term. A new USA – China trade
deal and no tariffs, brings peace and a great relief rally. No deal brings
grief, a serious tariff drag on the Chinese economy and with it the global economy,
and probably turmoil to say the least, in global stock markets.
Little wonder that
for once Dr. Copper is highly confused.
Copper,
Improving society since the dawn of civilization
Column: Looking for answers from Dr Copper? He's confused as well
February 8, 2019 / 12:28 PM
LONDON (Reuters) - Doctor Copper seems very confused at the
moment.
The metal
with the honorary degree in economics is caught between the current reality of
deteriorating macro signals and the belief that things will soon get better.
Nowhere more
so than in China, the single biggest user of copper and just about every other
industrial metal.
It was
Beijing’s campaign to soak up excess liquidity in the Chinese economy that
stopped copper in its upward tracks in the second quarter of last year.
The London
price slumped from over $7,000 per tonne to under $6,000 over the course of
June and July. Fears of a slowdown in China, even an engineered one, sent funds
running for the copper exit door.
Since then
copper has trudged sideways in a broad $5,700-6,400 range, marching to the news
beat of the U.S.-China trade dispute.
More tariffs
mean more potential pain for Chinese manufacturers. Fewer tariffs help Beijing
to re-stimulate the country’s flagging growth engines.
Stimulus is
already on its way.
Doctor
Copper’s problem is calculating when it’s going to start working and whether
it’s going to be sufficient to kick-start the Chinese economy.
CONTRACTION IN CHINA
Economic storm clouds seem to be gathering the world over.The International Monetary Fund last month cut its global growth forecasts for 2019 and 2020 with the warning that “risks (...) tilt to the downside.”
The European Commission has this week done the same to euro zone growth and there are signs of manufacturing weakness spreading across Asia.
But the two most important indicators for Doctor Copper are China’s manufacturing purchasing managers indices (PMIs).
Both fell into contraction territory below 50 in December and both stayed there in January. There was some stabilisation in the official PMI last month but the Caixin Index, a more accurate barometer of health in China’s smaller company sector, fell again to 48.3, its lowest reading since February 2016.
Recent history shows that weakness in China’s PMIs is never good news for the copper price.
---- Because that’s where any analyst consensus breaks down.
Citi is in
the bull camp. The title of the bank’s Feb. 4 research note, “Let’s get loud -
copper should rally by 10 percent”, tells you everything.
The 3-6
month forecast is predicated on copper’s own micro fundamentals, such as the
expected boost to Chinese grid investment and low visible inventory.
Stocks
registered with the London Metal Exchange, the Shanghai Futures Exchange and
the CME registered only a highly modest collective build of 20,000 tonnes in
January, a seasonal trough for global manufacturing activity.
At 371,000
tonnes combined visible exchange stocks at the end of January were 299,000
tonnes lower than one year earlier.
Moreover,
Citi argues, the current slowdown evident in China’s sliding PMIs is in the
price, leaving sentiment vulnerable to any positive surprises from China as it
returns to work after the Lunar New Year celebrations.
Others take
a diametrically opposed view.
Again, the
title of Barclays’ Jan. 24 research note, “Copper - dancing on a precipice”,
tells you much about its bearish stance.
“We believe that
copper prices are about to decline even from today’s relatively low levels”.
Barclays is looking for the copper price to break down from the current range
to $5,500.
Sluggish
Chinese activity ahead will test the market’s macro nerves. And while inventories
are undoubtedly low, they contrast with weakening physical Chinese premiums and
little sign of time-spread tightness on the London Metal Exchange, according to
Barclays.
Both bulls
and bears accept that copper’s short-term prospects remain beholden to
progress, or equally the lack of it, in the ongoing trade talks between the
United States and China.
The London
copper market had a peek at the upper end of its range this week with a
Thursday high of $6,289.50 per tonne.
More
Copper Mines Halted by Heavy Rains in Chile
By Laura Millan Lombrana
Updated on 8 February 2019, 19:22 GMT
Rain expected to
continue through the weekend, agencies say
Heavy rains and floods that have affected the world’s top copper-producing nation for the past week are forcing companies to halt some operations.
Chilean state-owned copper miner Codelco stopped work at its Chuquicamata and Ministro Hales mines on Thursday night, while Freeport-McMoRan Inc.’s El Abra mine has been halted since Monday, the companies said in emailed statements. The three mines are near the city of Calama in the country’s north.
“This masks a larger problem because the storm has also impacted southern Peru, with an emergency declared in some areas,” Cesar Perez-Novoa, an analyst at BTG Pactual in Santiago, said by phone. “It is still too early to quantify the impact of these stoppages.”
Strong to moderate rains and thunderstorms in northern Chile are expected to continue through Feb. 10, according to Chile’s weather service Meteochile. The storms are expected to move south, affecting the Andean and pre-Andean areas in the regions of Arica y Parinacota, Tarapaca and Antofagasta.
----The Atacama desert in northern Chile, home to some of the world’s largest copper mines, is the driest place on the globe. Rains occasionally hit the region in January and February, the so-called high plateau winter. But this year’s downpours have been unusually intense, with the deluges sweeping away roads and impacting water supply in Calama, where three people have died, according to Chile’s emergency agency Onemi.
Chuquicamata and Ministro Hales are part of Codelco’s northern division, which also includes Radomiro Tomic. The three mines together produced 848,900 tons of copper last year, making it the company’s top-producing division, according to a monthly report by Chile copper agency Cochilco. Freeport’s El Abra produced 91,000 tons in 2018, according to the same report.
Hail and snow
Peru’s weather agency Senamhi declared special weather alerts in 14 regions along the Andean mountains. Moderate and strong rains, as well as thunderstorms, started to fall on Wednesday and will continue until Saturday, the agency says. Hail and snow can also be expected in some areas. The alerts affect some of Peru’s main mining regions, including Apurimac, Arequipa and Cuzco.The Cerro Verde mine in southern Peru, the country’s largest copper operation, is operating normally, Freeport said. MMG Ltd. and Southern Copper Corp. didn’t immediately respond to a request for comment on the storm’s impact.
Friedland confident Congo copper mine will be world’s second-largest
Cecilia Jamasmie | |
Billionaire Robert Friedland, founder and executive chairman of Ivanhoe
Mines (TSX:IVN), said Wednesday his copper project with Chinese partners,
Zijin Mining and Crystal River Global in the Democratic Republic of Congo
“definitely” has the potential to become the world’s second-largest
red metal mine.“Kamoa-Kakula will become the world’s second-largest copper mine with peak annual production of more than 700,000 tonnes of copper metal,” Friedland said in a release announcing the results of an independent pre-feasibility study (PFS) for the project.
The mining
veteran, who made his fortune from the Voisey’s Bay nickel project in Canada in
the 1990s, said the capacity of the project’s first phase, estimated at 6
million tonnes of ore a year, could later be tripled.
Mine grades
at Kamoa-Kakula, the PFS shows, will average 6.8% copper over the initial five
years, and 6.4% in the first decade, with production starting in early 2021.
First, Friedland needs to raise more than $1.1 billion, but he said he’s
already in talks with China-based financial institutions.
“The mine is
getting built,” Friedland said. “The first operation will be able to finance
two further mines and a smelter (…) That is mind-boggling and we’ve never seen
that before.”
Ivanhoe Mines has been working on Kamoa-Kakula for ten years with its joint-venture partner Zijin — which acquired a stake in the Canadian miner in 2015 through a wholly-owned subsidiary — and the Congolese government. The project is also backed by China’s state-owned Citic Metal, Ivanhoe’s largest shareholder.
Friedland’s words didn’t come as a surprise for those following the project's progress. Only last week, Ivanhoe announced what it called an “unprecedented” intersection in a shallow, flat lying deposit at the asset.
For Paul
Gait, analyst at Sanford C. Bernstein, the results from drill hole DD1450 at
Kamoa North were “nothing short of extraordinary.” In a note to investors, he
said the released figures show higher copper grades than the 0.5% to 0.6%
detected at Anglo American’s Quellaveco project in Peru or Teck Resources’ QB2
project in Chile.
They
confirm, he said, that “the broader Kamoa-Kakula region is by far the most
important and exciting mining project in the world today.”
If fully
developed, the mining complex could produce 382,000 tonnes of copper a year
during the first 10 years, climbing to 700,000 tonnes of copper after 12 years
of operations. More importantly, Friedland said, Kamoa-Kakula could restore the
DRC to its historical position as one of the world’s top copper producing
countries.
We're teaming up with a major
Hollywood studio, and we're making a movie called
'Copper.' It's set on Mars in
the 24th century. By then we've got 27 billion people in the world, copper is
the world's most valuable metal because everything runs on electricity, and
there's no more burning of hydrocarbons.
Robert Friedland
The monthly Coppock
Indicators finished January.
DJIA: 24,999 +76 Down. NASDAQ:
7,282 +124 Down. SP500: 2,704 +71 Down.
Normally this would suggest more
correction still to come, but with President Trump wanting to be judged by the
performance of the stock market and the Fed’s Plunge Protection Team now
officially part of President Trump’s re-election team, probably the safest
action here is fully paid up synthetic double options on most of the major
indexes.
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