Copper: Needed, Wanted and Now at Four Month Highs

After a drastic decline following the crash of 2008, copper now stands about $US3.46 per pound. This is close to the shattering price of $4.00 we all saw in the boon days of early summer of 2008. Moreover, the price has continued to increase, including about 1.8% over the course of a doldrum August. One possibility for this continuing resurgence is the March 11th Chilean Earthquake which caused a temporary suspension of production from Codelco (Chilean state owned) and Anglo American (LSE: AAL).  Between the years of 2003 – 2009, copper made up approximately 15.6% of Chile’s GDP. For magnitude purposes, ~42.5% of Chile’s exports is copper. Suffice it to say, copper drives Chile and an 8.8 magnitude earthquake will affect the greater copper market, albeit for a limited time.

But there are also further reasons. For those who view China as the saving grace of this international recession, copper is a strategic metal. How can they create and update a power grid with out it? Copper is a great conductor and has an alternative, gold. The only gold wiring I know of is in the US Space Shuttle program, which is bring retired in 2011. China has over $3 trillion ($3,000,000,000,000) in US currency. Would it want to hold a declining asset or purchase a necessary hard asset for an ever growing, technology & infrastructure driven nation?

Although the Shanghai Futures Exchange monitored that China’s copper stockpiles have surged 95% in the first and second quarters of 2010, they have since dropped. The initial surge may have warned against future exports to China, however they are still importing. Inbound shipments of refined copper rose about 6% from June 2010 to July 2010. It is lower than a year ago, but a possibility for this is an arbitrage trade with prices higher in Shanghai than in London. In July, China’s economic growth “eased” to 10.3%. Even though this is down from previous quarters, this is still staggering. The simple truth is that the country is still growing. It will consume raw materials. Copper is one such ‘fodder’ for growth.

Currently copper is in a period of contango, with futures up about 3% today. Will this trend continue? An interesting issue to note is that copper often accompanies gold. When gold is hot, mining companies may be gold companies with a copper credit, and when copper is hot, they are copper companies with a gold credit. As gold is trending higher, copper production may also increase as gold becomes more economical at higher prices.

Going back to the original point, copper seems to be wanted by the consumers, not the speculators. With fundamental uses being the driving force, not commodity trading, the future continues to look positive for element number 29.