Copper Prices Up on Speculation: This Shouldn't Last

Aug.26.09 | About: iPath DJ-UBS (JJC)

While China's apparent consumption of copper has increased almost 50% in the first half of 2009, the effects of stocking and destocking as well as shorting mean the country's growing appetite for the metal will still likely pull back moving forward, a new note says.

Hendrik Visagie, analyst with Octagon Capital, estimates actual consumption in China will settle at just over 6 million tonnes from the 7.4 million tonnes of apparent consumption indicated so far this year.

"We concur with others that China will slow down in its apparent consumption of copper to a rate closer to real consumption," he said in a note Tuesday. "Since we expect China's drop in apparent consumption to occur as the rest of the world's consumption begins to grow again, we do not expect the copper price to decline significantly in the short term."

China's apparent copper consumption so far this year has been significant. In the first half of 2009, China imported 2 million tonnes of refined copper, up 1.4 million tonnes or 193%.

This suggests consumption of 4.3 million tonnes, up 48% from 2008. The total demand for copper in China last year was only 5.136 million tonnes, although the number could be short by as much as 300,000 tonnes due to de-stocking, Mr. Visagie said.

In contrast, China's primary copper production was 2.3 million tonnes, up only 80,000 tonnes or 3.6% compared with 2008.

Mr. Visagie has raised forecasted copper prices to US$2.60 a pound in the third quarter of 2009, to US$2.90/lb in the fourth quarter of 2009, and US$3.20/lb in 2010 on "market speculation."