The Hindu Business Line : Asian growth supports copper

Mumbai, Nov. 19 Data released by International Copper Study Group (ICSG) point to a copper market deficit of nearly 2.58 lakh tonnes in the first eight months of 2007 compared with a surplus of 38,000 tonnes during January-August 2006.

However, data showed that in August 2007 itself, the market was edging into a surplus. Experts believe, the market may not be going into a genuine surplus but was accounted for by seasonal factors.

Demand during the August is usually weak due to summer holidays in North America and Europe.

Significant Growth

The market deficit so far this year is mostly due to inventory build up in China as against de-stocking that took place last year.

ICSG data highlight the fact that copper demand growth in 2007 has been almost entirely driven by China, with demand in Europe, the US, Japan and even the CIS contracting in recent months, Macquarie Research Commodities said in a report adding that ex-China and Japan, Asia has been delivering significant growth.

In accordance with OECD lead indicators, year-on-year growth has dropped sharply in recent months. Europe is moving from growth to contraction. Copper demand downturn is likely to get worse before it gets better.

Demand growth

According to Macquarie, the positives for copper include low inventories, lower than expected supplies and the potential for prices to react strongly to any supply disruption until stocks are much higher. The negatives, on the other hand, are that demand growth is slowing and may slow further in the coming months.

This may be enough to result in a modest surplus through the first half of 2008 — unless Chinese demand can fill the gap as it did this year, the report stated.