One contributing factor to Chile’s production boom has been the return to health of Collahuasi, the world’s third largest mine. In 2012 the mine was plagued by all the traditional Chilean mining industry problems such as ore grades, labor strife, and inclement weather, in addition to accidents which saw out fall by 37%.
China is now the world’s second largest copper miner. Year-to-date output is up 15.2%. While its production is still dwarfed by Chile’s, it is a contributing factor to growing world supplies. At the moment, however, the fact that China is still importing copper attests to the reality that demand in China remains strong.
According to the most recent International Copper Study Group (ICSG) report, which covers the period between January and July, the global balance sheet posted a 150,000-tonne deficit in July, bring the year-to-date balance to a 93,000-tonne deficit. As recently as the end of April the market was showing a 266,000-tonne surplus.
Global exchange-warehouse statistics also confirm that the market is tightening. Chart 3 shows the combined inventories at LME, COMEX, and Shanghai warehouses have declined by 240,000 tonnes since June.
The lackluster directionless trade we’ve been witnessing reflects the relative balance between the supply and demand sides. We are cautiously bullish because Chinese buying can overwhelm any influx of supply – should its importing habits be maintained.
We recommend using the recent swing to the low end of the multi-month range to establish long positions. Buy March copper and place initial stops at 315, close only.