(07/11) Can Copper Stay On Top?

November 7, 2009

Top copper producer Freeport-McMoran recently reported a blow-out third quarter that saw its earnings sail past even the most optimistic of analysts' expectations. The reported earnings per share of $2.07 for the period handily beat the $1.34 consensus number that Wall Street had been looking for, despite a 10% drop in revenues. Higher price realizations for the copper, gold and molybdenum produced by the company, and improvements in its cost structure were behind the earnings gains.
Strong Chinese demand for this key industrial metal has been the primary force behind its more than doubling in price so far this year to its current level of about $3 a pound. But the recent gains appear to have been prompted more by speculative activity on the part of traders than strong fundamental demand from Asia.

Copper inventories at the world's leading metals exchange, the London Metal Exchange reached their highest level since the middle of May and are up more than 50% since mid-July, suggesting that Chinese demand may be taking a bit of a breather at the moment. And fresh data showing that the Chinese economy roared ahead at an 8.9% annual rate actually prompted some selling of copper as traders now appear to be embracing the view that China's stimulus-fueled growth may well have crested.