By Leia Michele Toovey-Exclusive to Copper Investing News
Copper futures declined Tuesday morning, back-tracking from Monday's gains as traders were skeptical over the state of the economic recovery. On the COMEX, March copper tumbled 2.3 percent, to $4.25 a pound. Copper ended up for a second consecutive day on Monday, as market sentiment focused on dwindling copper stockpiles.
Copper is down approximately 5 percent from its all-time record, of $9.781, hit earlier this year, as traders question how monetary tightening in the emerging markets will influence copper demand. On Monday, copper declined in early trading following India's interest rate hike. India's central bank increased the benchmark rate to a two- year high of 6.5 percent, joining China, South Korea, Brazil and Thailand in higher rates.
On Monday, London Metal Exchange CMCU3 closed up $88 at $9,529 a tonne. COMEX March copper HGH1 added 3.95 cents to settle at $4.3485 per lb., after dealing between $4.3090 and $4.3725. Trading was interrupted yesterday on the LME due to “connectivity issues”, and higher margins were announced copper, nickel and tin, requiring traders to put more cash down to trade the metals.
Analysts expect to see further price volatility in the days ahead as markets adjust for the week-long Chinese Lunar New Year, set to begin on Feb. 3. In the long-term a widening market deficit could propel copper to new record highs this year, as exchange-traded products and a narrowing supply surplus buoy prices. Stocks of copper at LME warehouses resumed a recent rise climbing by 200 tonnes to reach 381,500 tonnes.
Copper smelters in Japan and China have won increased treatment and refining charges from global copper mining companies, including BHP Billiton (NYSE:BHP), for 2011. The smelters in these regions have been producing at below capacity levels in the following months, because they have been struggling to make profits at the 2010 fees. Pan Pacific Copper, Japan's biggest copper smelter, confirmed it had agreed to treatment and refining charges of $US80 per tonne with an unnamed South American miner for contracted shipments of copper concentrate in 2011. This represents a 72 percent increase over the fees set in 2010.We strongly believe copper demand will be good and the concentrate market will tighten again this year. We don't have much confidence that the Japanese smelters will be able to maintain these levels in mid-year negotiations or in 2012, said Atsushi Yamaguchi, a non-ferrous metals analyst at UBS in Tokyo.
China's production of refined copper was 4.8 million tonnes in 2010, up 12 percent from 2009, while capacity expansion of 500,000-600,000 tonnes in 2011 will probably contribute to a further rise in copper output. Treatment and refinement charges (TC/RC) are paid by miners to smelters to turn copper concentrate into copper cathode. They are the key source of revenue for smelters, and tend to rise when concentrate availability is sufficient or smelters are producing at below capacity.
Vancouver based First Quantum Minerals Ltd (TSE:FM) will invest more than $1 billion on a new copper mine and smelter in Zambia. The new mine is called the “Trident mine and smelter project” and is located in the Northwestern province of Zambia. “The initial annual through-put at Sentinel is estimated at 25 million metric tonnes of ore, expected to rise up to 50 million metric tons to produce 300,000 metric tonnes of copper,” Clive Newall, First Quantum's president said in a statement. The Zambian project will be commissioned by the end of the year, Newall said. The mine will probably produce copper over 20 years and create about 2,000 jobs. After a battle for mining rights in the Democratic Republic of Congo, First Quantum has been looking to expand out of the country. Outside of this current project, First Quantum is investing in projects including the Kevitsa nickel-copper operation in Finland and the Ravensthorpe nickel mine in Australia, which is scheduled to start output next year
The rainstorms in Australia have forced Newcrest Mining to downgrade its forecast full-year copper and gold production. Newcrest, Australia's largest gold producer said gold production for 2010-11 had tightened to a range of 2.85 million to 2.95 million ounces, down from guidance of between 2.85 million and 3 million ounces. Copper production will also take a hit, as guidance for the 2011 financial year is reduced from the previously advised range of between 80,000 and 86,000 tonnes to between 75,000 and 80,000 tonnes. December rainfall meant Newcrest's Cadia Valley gold operations near Orange, New South Wales, produced 18,000 ounces less than expected as access to the high-grade area in the open-cut mine was obstructed. The Cracow and Mount Rawdon mines in Queensland experienced a small drop in gold production of a combined 3000 ounces. Continued impacts are expected in the March quarter.