More Copper Market Signals Support a Stronger Price

Not two weeks ago did Stuart write a post commenting on a very bullish copper prediction from Credit Suisse calling for copper to reach $10,000 ton in 2012. And though copper prices appear to hover at the $7500/ton range currently, some interesting indicators suggest that the forecast from Credit Suisse might have some legs to it. Two recent market commentaries help support the Credit Suisse prediction.

The two separate observations （though stated in one sentence） come from a Reuters article quoting comments made by Swedish copper fabricator Elektrokoppar. The company suggested an increase in European copper demand by “some 3 percent in the second half versus the first, driven by end-use consumption rather than restocking.” Two points intrigue us. The first, that copper demand will actually increase more during the second half of the year vs. the first half lends support to the argument that manufacturing, though certainly not as strong as it was in say 2006 or 2007 seems to be improving. An economic piece we ran yesterday suggested this was the case.

Second, as we have previously reported and many have noted, Q1 GDP growth came largely as a result of restocking. If demand has indeed picked up in the second half of this year and if that demand has not come as a result of restocking then we have quite an interesting positive development on the demand side.

So what other copper indicators should one look at to make their calls on the market? Let’s pick just two metrics （there are actually a couple of dozen） – copper capacity utilization which remained at similar levels from 2009 according to International Copper Study Group’s latest press release and down some 2.4% compared to 2008 （though nobody ought to be surprised by that number and crude production （an increase of 5.7% compared to the same period in 2009） while secondary production increased by 27%. Refined copper usage increased 8.4% compared to the same Jan – May time frame in 2009.

And though prices have declined somewhat, they are still only 16% below their all-time high reached in July 2008, according to the Reuters article. We’re not calling a bull market yet by any stretch of the imagination but some of the indicators are looking a bit more positive. A few more of those and the investor money will start coming in again too…