Hi You're absolutely right that the POC is highly correlated to...

Hi

You're absolutely right that the POC is highly correlated to the stockpile levels. There are a few things about the stockpiles:
- they have been at historically low levels for a while now. At levels representing just a few days of world consumption. Therefore, if you go through the worst financial crisis since the great depression, it's hardly surprising that the stockpiles have doubled or even tripled from those dangerously low levels. So I think it's important to put the stockpile levels in perspective. If the world doesn't have the cash to buy copper for a week, stockpiles would have doubled. This is obiously a simplistic assessment and various other factors would be involved, but you get the idea.
- while it does drive the price, it's hard to say how much the stockpiles actually mean. These numbers are very easy to manipulate (up and down). For examples, we annually go through a process of destocking where consumers, central banks and some producers use up personal stockpiles which are not part of the LME or other measured stockpile figures. That time is generally the last quarter of the year. So even without the financial crisis, you would have expected stockpiles to double over recent months (as it did in Dec 06 and Dec 07). Combine this with a drop off in demand and you have a disasterous mix for copper - no wonder it dropped to such oversold levels.
- I'm not suggesting that fundamentals justify a copper price of US$4, or that it even did. But I think something closer to US$2 than US$1 is justified. Why? - Production cuts have been coming thick and fast (importantly, these relate not only to uneconomic mines cutting back, but cutbacks due to issues with mines), seasonal demand should pick up and world stimulus packages should help replace some of the demand lost due to recessions. So once these filter in to the market, you'd also expect the stockpile figures to start falling and POC to be a bit stronger.
- It is also important to note how much sentiment drives these markets in both directions. While the world may be heading for recession (with most developed countries in the middle of one), that means demand will be lower, not zero. If the POC drops below the cost of production, that means there is no incentive for producers to produce. In the current environment of industrialisation of some of the worlds largest countries by population and extensive stimulus packages, I simply can't see how this is the case.
- I read recently that it is estimated that most US/Canadian producers have a total production cost of around 1.40-1.60 at the moment. You'd expect that this would be similar for much of the industry (with the exception of the very large and high grade deposits and some operators in Asia). Not sure what the world wide average is or if it can even be calculated. But for the purposes of discussion, it's hard to see the POC staying below these levels for too long. I suspect that, these issues, combined with the factors in my previous post, explain why the POC hasn't fallen further.

In short, I agree that stockpile levels will need to stabalise to see a sustainable increase in copper prices. In my view, stockpiles will begin to ease over the next few months.