A Short Note on Copper

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 |  Includes: FCX, JJC, SCCO
by: Daniel Moser

In November, gross imports of refined copper rose 15% m/m to 194Kt, while exports fell 42% to 10.8Kt. As such, China's net imports of refined copper rose by 22% to 183.6Kt in November.

According to Barclays’ analysis,

given the strength in domestic refined output and unchanged SHFE inventory levels over the course of the month, apparent consumption levels of copper in China are stronger than were previously expected for this point in the year. Domestic refined production was recorded at 405Kt in November, which combined with the net import figure and unchanged SHFE stocks points towards apparent consumption at 589Kt during the month, up 13% m/m as well as 22% y/y.

The report goes on to say that “re-strengthening in apparent refined consumption levels in November is evidence, in our view, that end-demand levels are in robust health, particularly in light of the lack of support from consumer restocking and government stockpiling, which was seen during the first half of the year. Indeed physical premiums in China have strengthened over the past month, and during the past few days SHFE copper has traded at a consistent premium to imported LME metal for the first time since July this year – both indicating tightening physical market conditions. The November numbers also indicated some increase in the level of raw material availability, which should support the expansion of refined output next year.”

Copper

9-Nov

9-Oct

9-Sep

Nov 09 Y/Y Chg

YTD Chg

2008

2008 Y/Y Chg

Concentrate Imports (Gross Weight)

496

453

562

22%

19%

5,196

15%

Concentrate Imports (est. Metal Content 28%)

139

127

157

22%

19%

1,455

15%

Refined Imports

194

169

283

37%

136%

1,458

-2%

Refined Exports

11

19

11

365%

-38%

96

-24%

Net Trade

-184

-151

-272

-

-

-1362

-1%

Scrap Imports

301

262

412

-15%

-32%

5,577

0%

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I have been pounding the table on copper since I began writing on Seeking Alpha. It has come a long way over the past year and in the past two weeks has shot up even further. Macroeconomic data continues to improve which further bolsters the price of copper. At this point I think a holding pattern is probably the best course of action. If you are long copper companies like Southern Copper (PCU) or Freeport McMoRan (NYSE:FCX), stay long and strong. In the language of Dennis Gartman, as long as the charts remain from the lower left to the upper right, we shall do more of that which is working and less of that which is not. Obviously there is no shame in taking some profits off the table or perhaps selling calls against your core holdings for a minor amount of profit protection.

BUT…if you have not been involved in the copper market, 2010 will surely present some sort of price correction in copper as well as copper mining stocks.

Click to enlarge

Click to enlarge

Based on the two charts above, I would argue that right now it is best to do nothing. Thus, we should sit and wait. Friday’s employment situation report will likely provide a tremendous amount of volatility and doing anything ahead of that would be particularly risky. If the employment report comes out bad…it could provide just the opportunity for those, who have yet to admit there are SOME positive fundamentals in the world today, to put on a small position in these stocks. In the aggregate portfolio, as long as the data continues to point to a recovery…the optimal strategy is either long or flat.

Disclosure: Author is long FCX, PCU, PSEC, AGCO, CNO, FAX, and ETV