Copper and Aluminum Market Review April 2, 2012 The first quarter of 2012 ended with more questions

s than answers. Are there market contradictions or hidden fundamentals affecting supply and demand? Copper and aluminum prices rebounded respectfully from the beginning of the year from its lows. LME Cash Copper ended the quarter up over $.37/lb., Spot Comex Copper settled up almost $.30/lb. since January 1st, and LME Cash Aluminum settled the quarter up a little more than $.04/lb. Fundamentally, a snapshot of LME and COMEX inventories in registered warehouses shows LME Copper stocks down 115,300 tons from the first of the year, Comex warehouse stocks are down 1,460 tons, and LME Aluminum stocks are actually up for the quarter by over 84,000 tons. In China, reports indicate large inventories, specifically copper- Shanghai copper stocks for this first quarter is up by over 113,000 tons. Copper demand remains strong in the United States, which is mostly attributed to the automotive sector. Conversely, Chinese scrap demand for the first quarter remained sideways with few indications that demand will pick up. The arbitrage between Shanghai and LME copper presented little opportunity during the quarter, and currently trades at a discount reducing imports. Another caveat distorting pricing, the arbitrage, and volatility is the uncertainty with how the European crises will pan out. Some of our contributors reported demand in the second half of March appeared to soften, but certain pricing characteristics are conspicuous going into the second quarter: Premiums increased for copper cathode and P1020 aluminum. Also noticeable with certain grades of scrap metal, mostly industrial grades, discounts are narrowing. Is this happening because of real demand, or because there is a dislocation of metal, indicating that the metal is not physically close to where the demand is coming from? Is there a lag in scrap generation or is manufacturing slowing down? Are units being held until there are more favorable market opportunities? With all eyes on China and nonetheless focusing with what transpires with tight credit, stringent import regulations, decreased demand, and weak manufacturing, markets are going to react without much confidence. Further factors eroding confidence is the financialization of commodities. Traders are unequivocally using metal in China for financial deals rather than for actual end-use or melting. A case in point: There are millions of pounds of aluminum tied up
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with financial deals putting pressure on premiums. Is this a fundamental or a financial demand adding to structural uncertainty? If and when economies recover, tighter discounts and premium increases will reflect stronger physical demand and may contribute to improving business conditions. Although markets ended in positive territory at the end of the quarter, its questionable if their performance reflected a recovering global economy, or a distorted perception because of untraditional business transactions. Fundamentally the question to traders is if there is going to be an ample supply of metal when building and construction starts to recover in the United States? And of course weighing heavily on demand will be the direction China takes to tackle its own internal problems. Our sources are telling us they are busy and orders are being booked. We are hearing positive feedback going into next quarter, but just how strong business conditions are is anybodys guess.

The opinions stated here are those of the non-ferrous division and may not reflect the opinions and views of Metalprices.com

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