Changing Investment Scenario in Copper Market

Copper is increasing in popularity as an investable asset for those looking for a way to gain exposure to the unprecedented growth currently underway in the emerging markets.  Copper is one of the most widely-used industrial metals,  its malleability and conduction ability combined with its ability to withstand corrosion makes it highly sought out for use in wiring, plumbing and a equipment.  Copper is used in power generation and transmission, heating and cooling systems. Copper is one of the most widely-used industrial metals,  its malleability and conduction ability combined with its ability to withstand corrosion makes it highly sought out for use in wiring, plumbing and telecommunication equipment.  Copper is used in power generation and transmission, heating and cooling systems.

The improving demand scenario for copper is coming from both industries as well as from investors. In copper, physical and investment buyers both account for significant proportions of physical copper demand. Buyers who have an actually physical need for copper are more likely to hold on to their futures (often because they have to).  Physical copper holders may actually, on the other side of the scale, prevent prices from collapsing.  When prices fall, this will attract physical buyers to the market, looking to lock in supplies, and therefore limiting the fall in prices.  While this “Bargain Hunting” also attracts investment buyers into the market – the return of physical buyers to the market at a low price is almost a guarantee.

The global investment scenario in copper is in search of some positive news from China & European Union. The report of slowdown in global economies has immensely affected the prices of copper for the year 2013, which has seen steep correction. With the beginning of 2014 first quarter, few positive signal have development has well supported the copper prices. With forecasts for improving economic growth this year, base metals are prepped to rally, with each metal’s ability to climb based on its own supply situation. The IMF has raised its forecast for global growth to 3.6 per cent in 2014 compared to 2.9 per cent growth in 2013. United States is likely to grow 2.5 per cent in 2014 from 1.5 per cent in 2013. With base metals being an economically sensitive commodity, these growth forecasts are great news, and among the base metals our top pick is copper, whose long term supply picture is fairly tight.  In 2014, the world usage of copper is expected to grow by around 4.5 per cent in 2014 with world-ex-China expected to grow by 2.5 per cent next year, data from the International Copper Study Croup (ICSG).  

In the recent geographical development, a major earthquake of magnitude 8.2 struck off the coast of Chile triggering a mild tsunami in the region. Though, the major copper mine, Chile's Collahuasi copper mine and port had no immediate problems following the quake, it send tremours in the copper prices on the positive side. Further, copper for delivery in three months dropped as much as 0.2 per cent to USD 6,633.50 per tonne on the London Metal Exchange, while in Shanghai the metal for delivery in June fell 0.2 per cent to 46,680 yuan ($7,520) a tonne supporting the fears of lower global supplies.

In spite of development in US and Latin American economies, the demand from China and India still holds the key for the future direction. China's State Council has indicated that it will increase spending on railways and housing, as policymakers attempt to boost slowing growth in Asia’s largest economy leading to substantial demand for copper in the coming months. Some of the important fact and figures pouring out of China are providing strong support to the prices. Overall urban population increases (by 2025, one billion people are projected to live in urban areas) and 221 Chinese cities will have over 1 million people (Europe has 35 cities with over 1 million people). Along with those massive increases, increased demand will be seen for buildings (5 million projected to be constructed by 2025) and transit (170 mass transit systems projected to be built- Europe has 70). Ultimately, whether it is more people, more buildings, or more infrastructures, more copper will be needed to facilitate construction. More consumers, also means more demand for: cars, appliances, garments, and electronics. In fact China has set a goal of 65 per cent urbanization rate by 2050. Over the coming 40 years that means 20 per cent of urban growth per year, that translates into 300 million rural residents becoming urban residents over this time period.

According to preliminary ICSG data, the world apparent refined copper balance in 2013 showed a production shortfall relative to demand of around 280,000 MT mainly due to constrained growth in refined production and growth in China’s apparent demand. Although Chinese net imports were lower in 2013, refined production was significantly higher. Anecdotal evidence suggests that unreported inventories held in bonded warehouses in China declined during 2013. Accounting for the unreported inventory decline, estimated to total about 260,000 MT, the ICSG calculated market deficit would increase to about 540,000 MT. On the global front, In 2014, world refined copper production is expected to increase by 6.5 per cent to 22.4 Mt compared with that in 2013. Refined production will benefit from adequate availability of concentrate off-setting expected tightness in the scrap market. ICSG expects world apparent refined demand in 2014 to grow by about 3 per cent from that in 2013 to 22 Mt. Apparent demand in China is expected to increase by about 5 per cent in 2014. Usage in the rest of the world is expected to increase by about 2 per cent. With better prospects for the world economy in 2015, world usage is expected to continue its growth, with world ex-China growth increasing to 2.5 per cent and Chinese growth at about 5 per cent.

In the South Asian market, Indonesia is banning the export of many mineral ores. Indonesia produces 18-20 per cent of the world's supply of mined nickel ore, and is a significant copper producer. The Grasberg mining complex in Indonesia, is the world's largest copper and gold mine in terms of recoverable reserves. So, if the ban is applicable to copper concentrate deliveries from Grasberg, the prices can take an upward swing.  

For much of 2013, copper has been fighting an uphill battle, with lack of demand and oversupply keeping prices well below 2011′s record highs. Now, with the advent of a new year, investors are having high hopes for the red metal as the global economic situations is stabilizing and the Chinese economy is showing signs of recovery.