Of Note:

A trend Desjardins Securities says isn't likely to change any time soon.

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Five reasons copper will hit $3 a pound



STEVE LADURANTAYE
Globe and Mail Update
April 14, 2009

The price of copper has gained about 65 per cent from its December lows, sparking talk of a comeback for the industrial metal. The demand has largely been fuelled by the Chinese, a trend Desjardins Securities says isn't likely to change any time soon.

“Near-term copper demand from China is stronger than we had originally forecast,” the brokerage wrote in a report.

“Based on this assumption, and reflecting improving sentiment toward the future direction of the U.S. economy and world economies in general, we are increasing our 2010 average copper price forecast to $3 (U.S.) a pound from $2.50.”

Here are five reasons Desjardins thinks the metal's gains are real.

China continues to grow

“Traders are demonstrating an increased level of confidence in the future of China's economy, and therefore metal demand. Additional indicators, including a growing money supply, reduced interest rates, increased bank lending and increased infrastructure investment, suggest China will remain a significant buyer of metals through 2009.”

Limited scrap available

“Scrap availability has declined during the last six months, due to falling copper prices and reduced industrial activity. Copper scrap provides roughly 15 per cent of the total supply to the copper market, and the reduction of this input has exacerbated the limited supply worldwide. As copper prices continue to climb, scrap availability should increase. However, the general drop in industrial activity over the last 6–12 months should prevent a significant build-up in scrap supply in 2009.”

It's not all stockpiling

“Improving broad-based indicators and a lack of anecdotal evidence that would indicate copper stockpiling by producers or consumers suggest a significant proportion of copper imports are being consumed. Undoubtedly, a restocking of the Chinese State Reserve Bureau stockpile has occurred and has affected copper demand within China – but not in the absence of real consumption during a period of economic growth.”

Arbitrage is high

“The Chinese domestic copper price is higher than the Western world's price. The ‘spread' has grown to 58 cents a pound from 35 cents a pound. One catalyst for this growing spread is increasing demand for copper, driven by real consumption (v. restocking) within China.”

Inventory burn

“The recent decline in London and Shanghai copper inventory levels indicates stable to improving demand. London copper inventory has declined 50,000 tonnes since February 25 to 496,775 tonnes. Shanghai inventory levels have ranged from 20,000–40,000 tonnes over the past year, consistent with stable to growing consumption.”



http://www.theglobeandmail.com/servlet/story/RTGAM.20090414.wcopperside0414/BNStory/energy

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