Market Briefing - September 4, 2009

Defying expectations for a correction before the end of the summer season, copper prices remained strong throughout August, posting a fresh high of $6,491/tonne on the 28th (the official 3-month price actually touched the $6,500/tonne mark on that day) and averaging $6,165/tonne over the month, up 18% on the July average. Although prices have retreated from their highs in early September, the cash quote remains comfortably above $6,000/tonne. Upbeat key economic indicators, suggesting an imminent recovery in consumption for the majority of the markets suffering declines to-date, against the backdrop of tight production continue to support prices.

Regarding the former, we note that the second quarter results for a number of key mature economies were better than expected and that the consensus view now sees a potential move into positive territory already in Q3 for many countries. This was augmented by continued strength in China, where industrial production enjoyed double-digit growth for a second consecutive month in July. On the supply front, as discussed later in this section, in addition to the ongoing structural tightness of copper production, fears of disruptions related to industrial action have provided an additional boost to prices.

Despite the overall positive fundamental backdrop for copper going forward, there is currently little evidence of a shortage of material in the market. For instance, LME inventories grew by 17,825 tonnes over the course of August, with a further 8,000 tonnes added in early September. Moreover, with the exception of China, demand in most regions to-date remains weak. Although, as discussed in the Executive Summary, many of the forward-looking economic indicators are improving, there has yet to be a significant pick-up in the downstream copper semis sector.

> This article gives the introduction to our latest detailed analysis on the market. To access a full version of a recent detailed monthly report on the base metals markets plus a recent briefing update, click on the links below.

> Base Metals Market Briefing - December 9, 2008.

> Base Metals Market Briefing Update - December 16, 2008.

Disclaimer: Whilst every effort has been made to ensure the accuracy of the information used in this document, GFMS Metals Consulting cannot guarantee such accuracy and GFMS Metals Consulting does not accept responsibility for any losses or damages arising directly, or indirectly, from the use of this information.