Commodities Watch: China Corners Copper (EQXMF, LUNMF, JJC, COPX, CU, ECH)

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Time for our daily look at the world of commodity prices and key developments. China’s Minmetals Resources Ltd. has announced that it plans to offer $6.5 billion for Canadian copper miner Equinox Minerals Ltd. (OTC: EQXMF). The Canadian firm owns key assets in Zambia, and the bid from Minmetals is contingent on the termination of a hostile bid for Equinox by Lundin Mining Corp. (OTC: LUNMF).  Can you imagine a that a $6.5 billion deal is not one of the biggest news stories of the day for the major media?  It is baffling.

The timing of the announcement is a bit strange because China is believed to have large stockpiles of copper in its warehouses and some analysts see weaker Chinese demand for copper in 2011. That may keep prices in check, but the predicted shortage in copper production this year is could be as high as 500,000 metric tons, way up from 2010’s shortfall of 90,000 metric tons.

The CEO of Chilean copper miner Codelco told Reuters that non-mining companies in China have bought copper and then using their stocks as collateral for loans.  Most observers, including Codelco’s CEO, think that copper prices will remain high this year and that the current softness will be just a memory within a few weeks or months.

For investors, the iPath Dow Jones-UBS Copper Subindex Total Return ETN (NYSE: JJC), the Global X Copper Miners ETF (NYSE: COPX), and the First Trust ISE Global Copper Index (NASDAQ: CU) have all risen significantly since last June, though growth has tapered off since the beginning of 2011. A Chile ETF dominated by copper is the iShares MSCI Chile Investable Market Index (NYSE: ECH), which is down -12% since the beginning of the year.

How a $6.5 billion copper deal has not gotten more attention that it has is almost baffling.  This is far from cornering a market, but it is just one more of the Chinese asset grabs where China can directly source its own raw materials.

Paul Ausick

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