Copper: No muscle in this rally

Focus on Futures: Copper

First, after lagging in its traditional relationship with the stock market for most of 2012 (Chart 2), copper prices had some catch-up to do. With the Dow Jones Industrial Average at five-year highs, it was inevitable not to associate the powerful equity market with a stronger economy down the road, and ultimately, improved demand for copper and other industrial commodities.

ISCG data are dated by three months, though, and at least some more current supply-side data would indicate that the market is not nearly as tight as the headline statistics portray. In its forecast for the balance of 2012, ICSG itself estimates that the deficit will moderate somewhat by year-end, down to 400,000 tonnes, and that in 2013 the market will flip completely to the other side with a surplus of 458,000 tonnes!

For the first time in ever so long, Chilean output has strung together a fairly decent stretch of robust monthly output figures.

Production for 2011 was 3.2% below the previous year. Earlier this year it seemed that the two restrictive forces that hampered increased output – labor strife and dwindling high-grade ore – would continue to keep a lid on growth. Output shrank 1.2% in the first quarter, but then grew 3.6% in the second quarter. June and July averaged an increase of 8.8%. Average monthly output for the year so far is 3.08%. That is far shy of original forecasts that put output growth at 6% to 10% for 2012. But if the pace remains steady, those levels – with four months of reporting remaining – are still achievable.

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