Are bullish copper statistics misleading?

Focus on Futures: Copper

Copper prices finished 2012 on a strong note and sprinted to multi-month highs to ring in the New Year (Chart 1). Aside from piggybacking on the stock market rally, the strength in copper prices has been underpinned by what seem to be some bullish supply and demand fundamentals.

Expectations for growth of 2012 Chilean production ran high, even as recently as several months ago. Early estimates put output up by as much as 10% over 2011. Between June and August, monthly production figures averaged 7.7% growth. It seemed as though some of the chronic problems such as labor strife and weather were not hampering operations and that the optimistic estimates were achievable. With data current through the end of November, year-over-year production is up only 2.85%, however, which leaves the promise of explosive growth in Chilean output in doubt.

While no region has experienced runaway growth, economic data is showing moderate recovery, at least enough to keep demand in industrial commodities steady. According to the International Copper Study Group’s (ICSG) most recent report, which covers the period between January and September 2012, global usage for refined copper grew 5.5% over the same period in 2011. Production of refined copper grew during this period as well, but by only 1.7%, ostensibly creating a drawdown in global supplies.

ICSG estimates that up to the end of the third quarter of 2012, the global market is running a huge production/consumption deficit of refined copper to the tune of 594,000 tonnes, compared with a deficit of only 74,000 tonnes at the same time in 2011.

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