Clyde Russell is a Reuters columnist. The views expressed are his own.
LAUNCESTON, Australia, Aug 27 (Reuters) – China has in recent years been viewed as the main driver of the global copper market, and while its influence remains strong, it’s possible that the rest of the world will take over in the short term.
Copper is currently one of the more divisive commodities among analysts, with opinions split over whether the industrial metal will continue its recent rally or lose ground over the rest of 2014.
The point is that considerable uncertainty exists over copper’s direction and much of that comes down to whatever view is held about the economic outlook for China, which consumes roughly 45 percent of the world’s copper.
While this is obviously a huge chunk of the market, it still means that the other 55 percent could exert a bigger influence, especially if its demand trend is changing.
London copper prices gained 3.4 percent between Aug. 14 and Tuesday’s close of $7,054 a tonne, although they are still down 4.2 percent since the start of the year.
The recent gains have largely been attributed to an improving outlook for growth in the United States and hopes that Europe may take steps to stimulate its struggling economies.
However, Chinese copper prices have also been rising, with the most traded Shanghai contract gaining 4.5 percent since Aug. 15 to close at 50,620 yuan ($8,230) a tonne on Tuesday.
Both London and Shanghai copper have posted strong gains since their 2014 lows of mid-March, jumping 10 percent and 16.7 percent respectively.
Part of this is due to the improving global economic backdrop plus expectations of a Chinese industrial recovery in the second half, but it may also be related to a sharp fall in reported inventories, both in London Metal Exchange (LME) and Shanghai Futures Exchange (SHFE) warehouses.
LME inventories MCUSTX-TOTAL dropped to a seven-year low of 141,275 tonnes in the week to Aug. 15, while SHFE stocks CU-STX-SGH dropped to 75,529 tonnes in the week to June 20, the lowest since December 2011.
While inventories at both exchanges have recovered slightly from those lows, they remain well below recent peaks.
The International Copper Study Group, in its latest report on Aug. 20, estimated a global deficit of refined copper of 466,000 tonnes in the first five months of this year, compared to a surplus of 251,000 tonnes in the same period in 2013.
It said global copper consumption was up 15.5 percent in the period, led by a 29 percent jump in apparent demand in China.
THINGS TO HATE ABOUT COPPER
Copper bears, however, point to a range of factors that they expect to act as a drag on demand for the red metal over the short to medium term.
For the rest of this column, click here: http://www.reuters.com/article/2014/08/27/column-russell-copper-china-idUSL3N0QX18D20140827