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Copper: A strong analysis of the bull case by Andy Home of Reuters

In today’s Reuters Metals Insider (click here, pages one and two of the PDF) Andy Home publishes a great analysis of dynamics in the copper market. You’re advised to click through and read it all, but here’s a goodly sized excerpt:
To understand why it’s worth considering what is happening further up the supply chain. Extreme tightness is already a constant in the copper concentrates market.

The exact numbers for this year’s mid-term concentrate deals are still unconfirmed by either miners or smelters but the consensus view seems to be that they came in at or just below $40 per tonne and 4.0 cents per pound.

Those in the spot market have been lower still, headline treatment charges recently falling to near zero. These are distress levels for smelters the world over.

And the problem is that no-one, least of all the smelters themselves, can see where the extra mine supply is going to come from to boost concentrates availability. World mine production grew by an anaemic 0.3 percent in the first five months of this year, according to the International Copper Study Group. Capacity utilisation fell to just 77.5 percent.

A lack of new projects and the ageing of the world’s existing mines, translating into declining ore grades, are going to continue keeping the concentrates market in deficit.

That in turn will directly impact global smelter run rates, even allowing for a continued improvement in scrap availability. This chronic mine under-performance is a wellflagged feature of the copper market. But combining it with relatively low inventory of refined metal creates a heady bull cocktail.

No wonder that a growing number of big bank analysts are forecasting copper prices to hit all-time nominal highs at some stage next year.

Bears beware! The warning signs are already there in that front-month LME tightness. The small backwardation in the Nov-to-three-months period could be just a taster of what lies around the corner for the copper market.


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