Prepared by
J.E. Gross & Associates, Inc.

Still Going!

Like that ubiquitous pink bunny, marching and beating the drum, copper is still running strong. No matter where you look, the story is the same. Strong consumption is absorbing new production, preventing inventories from growing substantially; the domestic economy is still chugging along, with some unusually strong statistics being reported during the first two months; virtually all major economies and most emerging market economies are expected to put in positive growth this year and despite forecasts of significant increases in production, thus far, it has failed to materialize. Further, from a technical point of view, despite the disaster that unfolded last year, wherein prices fell some 47 cents and looked as though they were headed lower still, we've recouped fully 34 cents of the loss representing a 72% rebound from the low. Looking at some recent reports, the strength of the numbers is nothing short of amazing. During January, the American Bureau of Metal Statistics reported that shipments of copper rod rose to 203,420 ST, putting January above the previous 202,575 ST high in October of last year. Thus, January posted a 21% increase in rod shipments over December and was fully 12% over last January. Likewise, brass mill shipments were equally strong, as some 111,465 ST were delivered in January, representing a near 30% gain over December and 8.5% over January 1996. On a more macro basis, ABMS reports that 2.152 million tons of rod were shipped to the domestic market, up almost 11% from 1995, while brass mill deliveries rose more than 5% last year to 1.254 million tons. Further, the Copper & Brass Fabricators Council reported that imports of brass mill products fell 2% from 1995 to 267,000 tons, while exports rose more than 15% to some 192,000 tons.

Recognizing that copper products are widely used in building construction; automotive products and electronic and electrical applications, these numbers fit well with global trends that have been evolving.

That is to say, we live in an environment that is increasingly dependent upon electricity for power, as well as transmitting and receiving signals. Telephones, wired and wireless, fax machines and computers with their modems have grown exponentially, with no end in sight. We are all witnessing and indeed are part of the flourishing worldwide web, which is bringing a new dimension to the phrase `we're all connected.' And interestingly, despite the fears and concerns that have been expressed over the past twenty-five years regarding inroads from fiber optic materials, the losses incurred have been more than offset by new products that require copper as well as the greater intensity of use in old applications. From another perspective, and in support of these trends, the Commerce Department reported that durable goods orders, those products expected to last three years or more, rose a revised 4% during January to an annualized rate of $176 billion, led by orders for electronic and electrical equipment. More specifically, the report cited increases in orders of 1.1% for industrial machinery and almost 15% for electrical equipment. Along this same line, despite our ongoing trade deficit, exports of goods rose to $612 billion during 1996, up more than 6% from 1995. Although the report does not specifically break out copper related items, one can assume with a fair degree of confidence, that a good part of our over-increase in consumption went into a wide variety of products that were shipped offshore.

Despite this bright picture, however, we cannot escape the fact that copper is still a commodity, whose price is subject to fluctuations based on a variety of logical, as well as illogical elements. To this end, copper has enjoyed a protracted period of prosperity, particularly when the failing cost of production is introduced into the equation. Clearly, this bliss won't last forever, but hopefully, we will be able to recognize the change in trend when it finally occurs.

Where Do We Stand Now?

"Copper rose to a new contract high basis May at $1.1450 on March 7th, but nevertheless posted a lower close for the day, qualifying it as a short-term key reversal. Thus, we saw lower numbers the following week with May falling to $1.08 where it recorded a double bottom, suggesting the formation of another level of support. Coincident with the high on May, March rose to $1.1820, which also represented a new contract high. More importantly, however, on the weekly chart, March rose to the long term resistance line, but thus far has been unable to rise above it. Similar to May falling back after the high was reached, March dropped to $1.12 with a double bottom, which on the weekly chart was the old resistance level we broke through four weeks ago. Now, the nearby parameters are pretty clear. If Spot gets above $1.18, the next high at $1.22 will be tested. After that, $1.31 is the next upside target, but at this point it is too early to even consider. Or is it? On the downside, if $1.12 basis Spot fails to hold, $1.10 is the next support level, followed by heavy consolidation between $1.05 and $1.08. Overall, one can still make a case for this move being part of a long-term technical correction from the highs posted in mid 1995.

"COMEX stocks have risen 13,360 ST over the past four weeks, to 31,861 ST, their highest level since November 1996. LME stocks, however, are off 22,570 ST since mid February to 221,840 ST. Although the combined total is up 115,000 ST since the December low, we are nevertheless at levels which historically associate with higher prices.

"Scrap values have been holding reasonably steady with Number 1 and bare bright trading at 20-30 under Spot, while Number 2 is running 130-160 below the May contract.

"The nearby Mar/Apr backwardation has been trading between 1.00-2.50, while the far forward May/May '98 has been 'in a range of 140-160. In London, the cash to three month back has been holding between $50 (2.30) and $80 (3.60)
.
March 17, 1997
J.E. Gross & Associates

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Relocated 04-18-97
Last updated on 04-18-97

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