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Aluminium remains an extraordinary case in excessive availability (with large exchange and off-exchange stockpiles and chronic surpluses), the growth in copper stockpiles and increasing surpluses over the next several..

27 Apr 2013

FRANKFURT (Commodity Online): Over the next couple of weeks it appears likely that the base metals complex may see some short-covering as Chinese merchants/speculators square positions heading into holidays early next week (May Day), stated Frankfurt based Deutsche Bank (DB) in its recent market analysis.

Furthermore an exhaustion in selling by Western funds concerned about disappointing economic growth appears to have been reached.

The magnitude of buying may depend partially on how CTAs respond and, of course, if there is an improvement in economic data after the recent disappointment – certainly the recent jobless claims data from the US is easing concerns.

Post this period of short-covering, the bank expects that the market may once again soften, particularly as seasonal strength is expected to dissipate as re-stocking ahead of building/construction season and spring buying by consumers ends.

Summer slowdown could present a ‘Sell in May and go away’ bias to the market. The bank expects that the copper market is likely to see 6,500/t at some point over the next two quarters.

Over the past month the copper market has de-rated against many of its peers in the base metals complex, particularly aluminium. The copper/aluminium ratio has fallen from 4.00 to 3.65.

The bank believes that this de-rating trend on the part of copper is one which is likely to remain a consistent theme over the next year. Over this time frame DB expects that copper availability is quite likely to increase meaningfully.

While aluminium remains an extraordinary case in excessive availability (with large exchange and off-exchange stockpiles and chronic surpluses), the growth in copper stockpiles and increasing surpluses over the next several years could blur the distinctions on the magnitude of availability – particularly given financial demand seems to be waiting in the wings to take up excess metal.

Supply disappointment

Over the past month (since the CESCO copper conference in fact), there have been a plethora of copper supply problems or threats.

--Rio Tinto: Bingham Canyon pit-wall failure – DB expects this could remove around 100kt of copper production in 2013.

--Jianxi Copper: The company has indicated that it may be forced to cut output due to a shortage of copper scrap.

--Chile: Union workers at mines are likely to disrupt operations periodically as elections approach later this year.

--Grasberg mine: Workers have refused to rule out a strike as talks are due to begin on 2 May; (Grasberg is one of the world’s largest copper mines).

“We have assumed 700kt of unallocated disruption allowance this year in copper supply/demand forecasts. On this basis, the disappointments in output are not yet sufficient to cause much concern,” the bank noted.

However the market is likely to watch this market element quite closely, particularly if it appears that demand conditions could improve.


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