October saw shipments of copper up about 18 percent for the largest monthly advance in over a year, and the metal has been trading higher on the London Metal Exchange for the past three sessions, with futures contracts slated for December delivery up nearly 1 percent on Monday to $3.29 per pound.
The surprise jump is largely the result of better than expected economic performance from China, the world’s largest consumer of the metal, that has seen stockpiles shrinking 28 consecutive sessions to the lowest level since March. However, the budget and debt-ceiling debates that have brought Washington to a standstill have also made copper a more attractive investment proposition in the short-term.
But recent gains may not stand much of a chance against the overall context of a supply glut for hard commodities such as copper and iron ore that has been projected for 2014.
Data released by Barclays Plc (BCS) and Portugal’s International Copper Study Group on Monday can be added to the list of projections for record high surpluses next year. Indeed, copper stockpiles could touch their highest level since the beginning of the new millennium, some 272,000 tons, which will subsequently slash 2014 prices by 10 percent from last week’s close to $6,450 per ton.
Analysts have become increasingly bearish on the demand outlook, a view that was neatly summed up by Robin Barr of Societe Generale SA ($SCGLY), who said that “You’re going to have to see demand really surprise, which I don’t see given the economic environment, to knock those expectations seriously off course.”
Over a decade of exponential Chinese economic development, the world’s largest mining concerns have divested their less profitable operations to focus on iron ore and to a slightly lesser extent copper, both of which are vital to infrastructure and other construction projects in the world’s largest country by population.
Freeport McMoran (FCX) , BHP Billiton (BHP) , and Vale SA (VALE) have all upped copper production over the past years to meet Chinese demand. These efforts have finally begun to bear fruit this year, just in time for the Chinese economy to enter a period of relatively slower growth and correspondingly greater uncertainty about the future. The situation is likely to be exacerbated in 2014 when a number of new mines and expansions of older ones across the globe come online, inflating stockpiles and putting significant pressure on prices.
The news did not affect copper producers in Monday trading however, with Freeport, BHP, and Vale all higher ahead of the closing bell.
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