Copper on Fire

The continuing strength in copper demand and subsequent pricing is directly correlated to the resilience of the Chinese economy. What else could explain the persistent consumption of this most basic of industrial metals? At today’s price of $3.44 a pound we’re a mere $0.50 away from the $4 price record set in the summer of 2008.

The question is, can and will this continue? With the global economy looking so shaky, and even China growth flattening, the question is when, not if, copper prices will soften. At least, that’s the superficial conclusion you’d expect.

“Uncertainties about the global macro-economic environment never went away and the markets get a reminder every time economic data comes out worse than expected,” Zhang Xi, an analyst at Luzheng Futures Co., said from Shandong today.

The Chinese Ministry of Industry and Information revealed in a document released yesterday that industrial production will decline even more in the coming months, with output slowing to a ten percent growth rate compared to over 17 percent during the first half of 2010.

According to Yang Changhua, a senior analyst with Beijing Antaike Information Development Corporation copper consumption will grow by 11 percent over to 6.2 million tonnes compared with 14 percent growth last year.

In Germany, factory orders were down over 2 percent in July from June, and a separate report shows Germany’s exports stagnant in July.

These sentiments contrast sharply with those of Canada’s RBC Global Asset Management Fund, where the perception that China will begin “restocking” copper in the next 6 to 12 months is expected to keep prices strong.

There are also supply constraint issues that need to be considered, according to fund manager Brahm Spilfogel.

“Because of the global financial crisis, we’ve seen mines that should have been brought on, not brought on because they weren’t able to get financing,” Spilfogel says, adding that this is the case for a number of commodities. “The mine supply really can’t meet even anemic demand around the world for copper.”

Copper was trading sideways as of Wednesday at 4 p.m. GMT.