Looking for clues to copper’s behavior

Latest data from China shows that refined copper imports over this January-April period were lower by some 22%, offering evidence, to some, that China’s copper consumption may prove to be less robust than many believe. While refined imports are lower, copper scrap demand is not showing any let up: scrap imports are up 37% year-to-date…from just the U.S., copper scrap imports to China (plus Hong Kong) for the first quarter were up 8.6% (157,546 gross tons vs. 145,090 gross tons.)

The global picture for copper this year suggests a balanced market based on ICSG forecasts (85,000 metric ton surplus in an 18 million metric ton market.) Maybe so, but copper remains susceptible to supply issues; note that last year’s expected surplus turned into a deficit. And, while global consumption is at best standing still, ongoing problems at the mine side, coupled with declining inventories of refined metal held on the London Metal Exchange and Comex, and the attraction of commodities as copper as an investment alternative, offer compelling evidence not to aggressively short copper.

Speaking at last week’s American Copper Council’s meeting, Catherine Virga of CPM Group predicted copper will average $3.60 this year and $3.30 in 2009. Year-to-date, LME cash copper has averaged $3.65.

What about $10/lb nickel in the fourth quarter of 2008? That’s the thinking from Standard Chartered as supply outstrips demand going forward—they’re forecasting a second quarter average of $27,900/metric ton ($12.66/lb); $24,000 ($10.89) in the third quarter, and $22,000 ($9.98) in the final three months of the year.

Now, ferrous scrap prices for May. As we’ve been reporting, obsolete material has lagged the (eye opening) increases we saw two weeks ago for prompt material. This week’s Iron Age delivered No.1 HMS (heavy melting scrap) composite price is $519.17/gross ton, up $16.67 from a month ago while shredded scrap was placed at $575.83, unchanged…Chicago bushelings, in contrast, are figured at $704.50 – that’s up $100 from last month. WSD’s SteelBenchmarker, meanwhile, has No.1 HMS at $495 and bushelings @ $674. Platts Midwest delivered price for shredded material figured @ $585/$595.

According to SBB (Steel Business Briefing, pig iron export prices from Brazil’s northern Carajás region to the U.S. have surged to $810/metric ton c.f.r. (and higher). That’s up more than $100/t compared to two weeks ago and based on $40-$45 freight from Carajas. Iron Age is also reporting $780-$790 f.o.b. New Orleans for Brazilian pig iron.

As for finished steel products, hot-rolled sheet in coil (HRC) prices are figured at $1,030/net ton ex-works, Indiana, per Platts, for June delivery… World Steel Dynamic’s SteelBenchmarker is currently showing spot HRC @ $1,047 f.o.b. the mill. The AK Steel and WCI Steel July asking price said to be $1,125 while ArcelorMittal’s July-August price was placed at $1,060…Nucor’s is ay $1,090 for July.

The big picture for the steel companies remains encouraging: Goldman Sachs’ latest, for example, noted that low steel supply, the weak dollar, strong global demand, discounts in domestic pricing versus the world, and what they termed as “an enormous need to increase U.S. imports continue to support our view that steel prices in the U.S. will remain strong.”

The IISI 2008 global production forecast is 1.282 billion metric tons, up 6.7% over 2007. This growth, they say, will be led by the BRIC nations (Brazil, Russia, India and China) (+11.1% year-on-year.) First quarter world production was running 5.6% greater than comparable 2007 figures. The U.S. was placed at 25.4 million metric tons for the first quarter, up 7.9%.

Then, there’s the paper mart where U.S. paper and paperboard production dipped 0.4% in March. Output from domestic paper mills was down 1.8% to 3.40 million tons while paperboard production rose for the sixth consecutive month to 4.27 million tons, a 0.8% gain, the American Forest & Paper Assn. reported.

North American northern bleached softwood kraft (NBSK) list prices remain at $880/metric ton for the fourth straight month; some, however, see list prices moving higher in June but based more on supply considerations than fresh demand.

Reduced newsprint consumption notwithstanding, domestic newsprint prices are holding steady at $680/metric tons. Citi Investment Research remains bullish for newsprint is is forecasting U.S. prices to average $770 in both 2009 and 2010. Supporting the market, they believe, will be further mill closures in Europe and North America and rising prices for energy and scrap paper here offsetting flat global demand…over the first quarter, newsprint production fell 4.2%.