BHP Billiton has released its production report for the period ended 30 June 2010 in which they announced that production of copper gained 27% during the quarter ended June 2010 as against the previous quarter. This comes at a time when almost every analyst-sourced article on copper is talking about dwindling supply as a justification for further price increases in 2010 and 2011. The "thesis" is that lower grades will mean supply constraints and possibly a copper deficit.
The international copper studies group [ICSG] still sees things differently from analysts:
According to ICSG data, the refined copper market balance for 2010 could show a surplus of about 580,000 metric tonnes (t) as growth in copper supply is expected to exceed projected weak growth in industrial copper demand. For 2011, a smaller surplus of around 240,000 t is anticipated as increased economic activity is expected to boost demand in copper end-use markets.
Earlier this year analysts -- the ones now predicting supply shortfalls -- were forecasting a rise in demand in 2010 of 17% (ICSG prediction was 6.7%). This hasn't eventuated. It is worth noting however that even in 2006 through 2007, years when the world economy was seemingly booming, growth in copper usage was 7%. Therefore to expect 17% growth in 2010, given the economic woes that remain in the world economy, seems remarkably optimistic advice for give to your clients.
Returning to the BHP announcement the improved output in Q2 was due to better grades at Escondida however BHP are expected a decline in output from Escondida in 2011.
My position remains unchanged to that stated in previous articles, namely that the current copper price is not supported by fundamentals. Speculators seem to take their lead from China imports and usage so monitoring China imports, currently down yoy, and the LME SHFE spread, seems like as good a guide as any to short term price movements.
Disclosure: long BHP