After failing to re-test April's high of 9944.75, LME copper reversed gains on Monday. The decline has accelerated since then as worries over global economic slowdown escalated. Indeed, copper has failed to trade above 10000 again since mid-February. There's a cocktail of reasons explaining the loss of glitter in the red gold: Chinese imports contracted, rising inventories, sluggish demand for physically-backed ETFs, weaker market sentiment amid debt problems in the US and the Eurozone. Yet, all of these concerns hinged only on the demand side of the equation. Indeed, given the weaker-than-expected production outlook in mines, copper will likely remain in deficit this year despite slowing demand.
BHP Billiton's Escondida mine, the world's largest copper mine, loses 2,500 tons of copper-in-concentrate production each day due to the strike over the past 2 weeks. Moreover, the impact of lower ore head grades on production has also been bigger than previous expected. Codelco, the world's largest copper producer, said that a decline in average grades is putting upward pressure on production costs. New sources of supply growth turn out to be worse than estimated. Antofagasta said its estimate for full-year copper production stayed at 620-640K tons. The forecast was reduced in June as operational progress of the new mine Esperanza was slower than expected.
The International Copper Study Group (ICSG) forecast in April that copper (refined) deficit will reach 377K tons in 2011, up +49.6% from 252K tons a year ago. Indeed, for the first 4 months of the year, the ICSG said that the apparent refined copper balance indicated a production deficit of 69K tons, compared with a production deficit of 57K tons the same period last year.
Concerning macroeconomic events, The Bank of Japan extended monetary easing by increasing the size of its asset purchase program by +10 trillion yen to 50 trillion yen. Policymakers also voted unanimously to leave the uncollateralized overnight call rate at 0-0.1%. The central had joined the SNB in intervening the currency market to curb yen's appreciation. The ECB and the BOE will meet for rate decision later today. Both central banks are expected to leave interest rates unchanged. ECB President Trichet is expected to reiterated that he and the members will continue monitoring price stability closely.