Tighter Cu Supply Heats Cash Market Price

World copper supply gets tighter. Copper cash buy price reached US$ 4,735 per tonne at London Metal Exchange on Friday, which was higher than US$ 4,725 of 3 months future price and represented the first backwardation in 5 and half months. Chinese demand lifted the cash price along with loss cutting buy by speculators. The higher cash price is partly due to producers’ future sales to fix the selling price.

LME copper cash price increased by 70% from bottom in December 2008. UFJ Research & Consulting’s analyst, Tomomichi Akuta said Chinese stimulus package contributes to the higher demand. Chinese demand increases due to infrastructure investment and appliances purchase support package while Chinese government stocks copper ingot to support smelters.

Shanghai Futures Exchange’s higher copper ingot price than LME price reflects the tight supply in China. SHFE price is US$ 500 per tonne higher than LME level. LME copper price increase is partly due to the higher SHFE price in months. Speculators with short position are forced to purchase at loss making price level while they expected lower price.

Major copper miners’ production cost is estimated to be less than US$ 3,000 per tonne while minor miners’ cost is around US$ 3,500-4,000. The higher LME price could encourage the minor miners to produce more. Such miners try to secure profit by selling at the high level future market.