The red metal, often seen as a 'bell-weather' commodity, rising with market confidence just as gold rises with market pessimism, is enjoying a remarkable year - gaining around 45% since the New Year. Many market participants point to the stabilisation of commodities, and copper in particular, as signalling the bottom of the bear market.
However, despite the steady growth in copper prices, the fact remains that demand is still seeming extremely fragile, with China being seen as really the only driving force at present for prices.
Since the New Year, copper prices have broken through the psychologically important $4,000/t mark (important because this price level enables most producers to mine profitably) all the way to $4,500/t more recently. From a low in December of $2,825 this is no mean feat. The question is whether or not this is an anomalous price spike.
In part, this rally is due to the declining London Metal Exchange (LME) stocks, which have fallen 7,425t and, as a consequence, below the 500,000t level.
The LME copper has moved to China as investors anticipate that China will take advantage of what have been much lower prices in order to stockpile the metal, of which they are the world's largest consumer, accounting for some 22% of global production over the past few year.
Additionally, the massive stimulus package announced by China at the G20 meeting means that funds are available to do so and indeed exports of copper to China have risen over the past couple of months.
It is speculated that China's State Reserve Bureau (CSRB) is looking to add 400,000 tonnes of copper to its stockpile in the second quarter of this year, but the SRB is, understandably, secretive.
As a result, Shanghai copper prices are actually higher than those on the LME (the gap has been as high as $673/t), explaining the movement from LME warehouses to China as traders capitalise on the arbitrage opportunity this presents and since they expect further stockpiling by the CSRB or its proxies.
Underlying demand is flat
However, despite the dramatic rise in prices, driven by increased Chinese demand and the possibility of further Chinese stockpiling, the fact remains that underlying demand and consumption is essentially flat - a cause of anxiety for many producers. In other words, whilst strong and growing demand for copper in China is a reality that bodes well for prices, at least while it lasts, the question of sustainability remains. That...