On the London Metal Exchange, copper for delivery in three months rose 0.4 percent to $6,915 a metric ton ($3.14 a pound). Copper futures for delivery in September gained 0.7 percent to settle at $3.166 a pound at 1:14 p.m. on the Comex in New York.
The red metal advanced for a ninth straight session in New York, capping the longest rally since 2005, amid signs of tightening supply.
While copper’s recent gains can accurately be attributed to Chinese and US central bank data it is still a metal that’s very much in surplus. This situation will continue well into next year but it may actually go into deficit in 2016.
With a lack of new supply coming online, the market is headed to deficit territory. And, according to Jim Lennon, a consultant for Macquarie Securities, Chinese demand is the key to it all. “China has accounted for over 100 percent of demand grown for copper over the past decade,” Lennon said, adding, “up until 2010, Chinese copper demand averaged 17 percent per annum.” And while that number might have come down slightly, demand for copper from China is still a driving force behind the market.
Consumption of the refined metal will trail output by 90,000 metric tons this year, Morgan Stanley said in a report June 2. The market posted a 83,000-ton deficit in March, after a 2,000-ton surplus a month earlier, the International Copper and Study Group said in a report today. Copper has rallied 9.2 percent from a 44-month low in March.
Supply and demand “favor the bull camp,” Tom Power, a senior market strategist at RJO Futures in Chicago, said in a telephone interview. “As long as we’re continuing to see strong economic data out of China, we’re probably going to see calls for more demand.”
The US economy shrank at a faster pace in the first quarter than previously estimated, contracting at an annual pace of 2.9 per cent compared with expectations of a one per cent drop. The figure cast doubt on official projections for growth of two per cent in 2014. Another report, showing lower-than-expected demand for durable goods in May, added to the picture of an uneven recovery.
Copper prices staged a small recovery late in the session, however, helped by a weaker US dollar and some buying by investors looking to boost their exposure to the red metal ahead of the month’s end, said a London-based trader. Copper is priced in US dollars, making it more affordable to other currency-holders when the greenback softens.
Metals prices were lifted earlier this week after an upbeat reading of China‘s vast manufacturing sector showed its targeted stimulus is successfully filtering down to small private enterprises such as metals manufacturers. The better than expected import numbers out of China may be a bit misleading however, because much of Chinese copper imports are tied up in finance deals as collateral for trade credit and is not being put to industrial use.