Copper's Two-Year High on China Import Data

by: Proactive Investor

All eyes in the commodity markets are still on the dollar today, following on from the release of the Federal Open Market Committee (FOMC) minutes yesterday, which has continued to fuel speculation that further quantitative easing will be forthcoming when they next meet in early November. With this weakness in the greenback, USD denominated commodities are trading higher across the board today, with copper touching a 2-year high on the London Metal Exchange (LME), boosted further following strong Chinese import data overnight.

Despite the data showing a slight dip in copper and copper product imports month-on-month, down 2.9%, the 368.4 thousand tonne figure is still seen as very strong in the base metals market, allowing copper to rally and soon having the rest of the metals complex following suit. In an interview with the London Financial Times (FT) today, Diego Hernández, CEO of the world’s largest copper miner Codelco, said he expects supply to continue to tighten mainly because there are only a few new projects where production will be starting. He also suggests that due to rising costs and lower ore quality, a copper price of around $6,500 a tonne will be required on average, in order for it to be economically viable to exploit new deposits and operate mines in the long term.

Light sweet crude is also benefiting from the Chinese data in today’s session, after it showed the Asian giant imported a record 5.67 million barrels of crude a day in September, a 35% increase year-on-year. The OPEC monthly oil report yesterday gave no unexpected numbers, raising their estimate of 2010 global oil demand by 100 thousand barrels per day (bpd) and reducing their expected demand for OPEC oil by 100k/bpd to 28.6m/bpd.

The International Energy Agency (IEA) and the US Department of Energy (DoE) are both set to release their monthly reports today. Although generally speaking the OPEC report tends to be the most pessimistic of the three, it’s unlikely today’s reports will give any numbers far enough away from the OPEC figures to hit price action that significantly.

Some attention is likely to turn to the weekly American Petroleum Institute (API) inventory data when it is released later today, although as usual this comes much more as a precursor to the more extensive, benchmark US DoE inventory data due for release by the Energy Information Administration (EIA) tomorrow, because of the Columbus day holiday this week. Citigroup are estimating crude stocks will show a build in the 0.5 – 1.5 million barrels region, although also expect refinery utilisation to show a small increase for the demand side.

One final thing worthy of note in the oil market is that the US Interior Department (USID) lifted its ban on deepwater drilling yesterday; seven weeks earlier than the planned November 30 date. This isn’t likely to bring in a raft of new supply however, even in the medium to longer term, with more rigorous safety standards and stricter controls likely to keep companies from reaching precious output levels for some time.

In line with the weaker dollar following the FOMC minutes, the precious metals complex is gaining good ground today, again continuing its strong correlation with the greenback seen over the past few weeks, with spot gold once again hovering near all-time highs. Silver too, is back near recent highs, hovering around the $23.55/oz level for most of the morning’s trade in London. The AM fixing saw gold at $1,358.50/oz (£856.77/oz, €970.98/oz), with the daily fixing of silver at $23.53 (£14.85, €16.84).

As with the broader commodity markets, agriculturals and softs are seeing some fairly decent gains in today’s session, despite the China National Grain and Oils Information Centre maintaining its forecast of a record corn crop of 169 million tonnes. They also suggest the soybean harvest is likely to drop by 1.3% to 14.8 million tonnes.

According to the Chinese customs authorities report, the country imported 4.63 million tonnes of soybeans in September, with total imports since the start of the year now at 40.16 million tonnes; a 24.1% increase year-on-year.

Disclosure: No positions