Are bullish copper statistics misleading?

Focus on Futures: Copper

It is hard to justify copper at $3.50 to $4.00 per pound – or even at lower prices – without the influence of Chinese imports. The average cost of production – even after including copper from mines with lower ore grades in Chile, which is more expensive to extract – is still far below current prices. If this commodity lived by the rules of many other commodities, prices would have to plummet to catch up.

Peru is the world’s third-largest copper miner and currently produces 1.3 million tonnes, or 8% of the world total. Newmont Mining is pouring a massive amount of capital into the Peruvian mining sector. There are hurdles to overcome, primarily in addressing environmental concerns. However, if plans proceed as expected, output could double over the next two years. Even if the deficit number were accurate, an influx of such magnitude would handily erase any shortfall.

Chart 4 shows that funds are net long, but not overwhelmingly. A continuation of the rally in the stock market can easily carry copper prices above the $3.85-per-pound highs seen this past fall – and beyond.

Remain short. Maintain stops recommended on October 17 at $3.85, basis the nearest contract, close only.

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About the Author
Sholom Sanik is an analyst with Friedberg Mercantile Group Ltd. He can be reached at
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