Copper's Two-Day Streak Overshadowed By Excess Supply In 2014

Michael Teague |

Copper rallied for a second consecutive day on Thursday as the official Chinese manufacturing PMI unexpectedly crossed over into growth territory for the month of July with a reading of 50.3, beating expectations of 49.8.

China is the world’s largest consumer of copper, and futures for September delivery were up 1.5 percent to $3.16 per pound on the New York Comex on Thursday, an advance of over 4 percent over two days.

The news is a brief respite from the 2013 trend of increasing stockpiles coupled with a drop in demand that has seen copper shed 12 percent so far this year. Major mining companies such as Rio Tinto (RIO) and BHP Billiton (BHP) posted record production of iron ore during the second quarter, but also significantly increased output of copper as well.

But Copper’s two-day rally was also overshadowed by Japan’s largest producer of the metal, Pan Pacific Copper Co., who said on Thursday that world supply is likely to surpass demand by 643,000 metric tons, a 500,000 ton increase on the current year’s difference. Despite the better-than-expected manufacturing news out of China, the company says that the country’s consumption of copper is likely to decline about 2.5 percent in 2014.

Stateside, Goldman Sachs (GS) forecasts a 392,000 ton surplus for 2014, while Morgan Stanley (MS) projects an excess of 420,000 tons. Despite the recent controversy over Goldman’s aluminum-storage racket in Illinois, both banks have plans to get in to copper storage next year.

Aside from large and extremely diversified financial institutions with questionable warehousing practices, other businesses stand to gain from the downward pressure that excess supply will put on copper prices. Electronics and car manufacturers such as Sony and Honda, for instance, should see a break on production costs as a result.

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Companies

Symbol Name Price Change % Volume
BHP BHP Billiton Limited 32.63 0.09 0.28 3,157,686
GS The Goldman Sachs Group Inc. 161.48 -3.65 -2.21 2,770,215
JMGZZ Jp Morgan Chs Hsg Fin Ltd n/a n/a n/a 0
MS Morgan Stanley 31.03 -0.88 -2.76 10,205,809
RIO Rio Tinto Plc 32.17 -0.24 -0.74 2,134,276

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