Copper demand indicators for China turning positive: Barclays

4 May

High frequency end-demand indicators have started to pick up, the SHFE/LME import price arb has opened, SHFE stocks and bonded stocks have been falling, physical import premiums have been rising, and time spreads on the SHFE have gone into backwardation.

LONDON (Commodity Online): Whilst Barclays agrees that the demand environment remains soft for copper, there are signs that it is improving. All the usual copper demand indicators for China have been turning positive.

High frequency end-demand indicators have started to pick up, the SHFE/LME import price arb has opened, SHFE stocks and bonded stocks have been falling, physical import premiums have been rising, and time spreads on the SHFE have gone into backwardation.

“In our view, the sell-off may look overdone, but any price recovery is likely to be mild and difficult to sustain. We continue to favour selling into short-covering rallies in Q2,” said Barclays.

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In a move that may bring some much needed supply discipline in the aluminium market Alcoa has announced that it is considering closing 460Kt of production (11% of its capacity) in the next 15 months.

The company is reviewing higher cost plants given the weakness in prices. Alcoa confirmed that it already idled 568Ktpy in Texas, Tennessee, Italy, and Spain in 2012. Whilst this is a move in the right direction towards addressing the global surplus, it will not change the immediate supply-demand balance until cuts to production begin.

Barclays continues to see the market in >1Mt surplus this year, the seventh year of surplus with cuts so far doing little to address that. In China cuts of up to 700Kt have been largely offset by increased production in cheaper locations in the country leading to a still strong increase in net supply.

Negotiations of labour contracts at Freeport McMoRan’s 535Ktpy Grasberg copper mine in Indonesia get under way this month and already workers at three of its contractors have gone on strike.

Machinery repairs services workers at PT Jasti Pravita, PT Osato Seike and PT Srikandi Mitra Karya went on strike after failing to reach an agreement on a pay increase.

Freeport stated that “The strike for sure can slow down [Freeport Indonesia’s] operations, but we don’t expect any direct impact on our mining and production,” (Dow Jones). The last labour negotiations and resulting strike was in 2011 and lasted into 2012 resulting in 100Kt of lost production at the mine. We have been highlighting this year’s negotiations as a risk to this year’s copper production.

Source: http://www.commodityonline.com/news/copper-demand-indicators-for-china-turning-positive-barclays-54268-3-54269.html

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