copper price to remain strong
Copper price to keep pumping Ashleigh Dubbelman Posted: Mon, 23 Jan 2006
THE copper price was expected to average $1/lb for a decade supported by strong fundamentals including a lack of new, high quality copper resources, said Richard Wilson, MD of consultancy Brook & Associates.
Underdeveloped copper projects are less attractive than those developed over the last decade, said Wilson who was writing for Optima, a magazine produced by Anglo American.
“One recurring observation in regard to future copper supply is that many currently undeveloped projects are less attractive, in terms of scale, location or source quality, than those developed over the past decade.”
“Over the next ten years our average price is marginally above $1/lb, measured in constant 2005 terms,” said Wilson.
The copper price is expected to average $1/lb “In addition, as in the past, we expect to see considerable price volatility during the period to 2015, with annual quotes ranging from 75c/lb - $1.65/lb.”
The key fundamental driving copper was the increase in consumer demand in China where an estimated 30 million people are expected to urbanise over the next few years, according to some estimates.
“On the consumption side there can be little doubt that China’s economic expansion is continuing at a very rapid pace,” said Wilson. “Copper is a key raw material for Chinese economic growth, particularly in construction, electric and electronic products and consumer products.”
Fundamentals
Copper, which is mainly used in the production of wire rod, has undergone a remarkable transformation in recent years. In April 2002 the copper price reached 71c/lb, a level last seen during the 1930’s Great Depression.
In 2004 global refined consumption grew by over 9% per annum, exceeding metal output by 1 million tones, clearly showing an increasing demand for the metal over recent years. But in 2005, copper output fell below 75,000 tons triggering new price highs. Much the same trend is forecast for 2006.
Two potential negative forces that could affect the copper market are the unlikelihood that India will replicate China in terms of absolute consumption over the next ten years, and the implementation of new environmental legislation.
India has been viewed as a logical successor or competitor to China as the next major region of growth for copper. But there are reasons to suggest that China’s preeminence in copper consumption will be maintained.
Even by 2012, Indian power generating capacity will be less than half the level already achieved in China in 2005. “According to Anil Agarwal, chairman of Vendanta Resources, India’s power generating capacity is expected to double from its 2002 level of 110 Giga Watts (GW) to 220 GW by 2012,” said Wilson.
“Although this represents a sizeable increase, it suggests more importantly that India’s manufacturing growth will remain far behind its Chinese neighbour.”
In addition, new environmental legislation will also result in reduced mine production as a result of increased copper smelting in China.
“There are already signs this year (2005) that Chinese manufacturers are increasing their scrap intake. If scrap recycling rates can be raised to their 1995 levels over the next 10 years this would introduce an additional 1 million tons a year of secondary copper,” Wilson said.
“If one assumes that scrap recycling rates rise to historic levels, then the net requirement for additional mine supply over the ten-year period to 2015 declines by 2.7 million tons a year.”
Numis Securities, a UK stockbroker, said the copper market would remain robust throughout 2006.
“A correction is likely in copper prices following supply worries easing as well as an upturn in Chinese imports,” said Numis analyst, John Meyer.
“However, supply will continue to struggle to meet demand in 2006, particularly as some producers are likely to produce less in 2006 as a consequence of mine planning issues.
“Therefore the extent of a correction will be limited and the market will be sensitive to any disruptions eg further strike action,” he said.
BHP Price at posting:
0.0¢ Sentiment: Hold Disclosure: Held
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