copper prices to fall around 1 dollar

Copper prices to fall in Q1 ‘07

Posted online: Wednesday, December 27, 2006 at 0243 hours IST




DEC 26: Copper may fall by $1,000 a metric tonne in the first quarter next year on concerns that slower economic growth in the US and falling imports by China may dampen demand for the metal, according to Great Wall Futures Co.

Copper may fall as low as $5,000 a metric tonne, Great Wall analyst Li Rong said in an interview in Shanghai. "That is the lowest since March 16. Prices have dropped 28% since reaching a record in May and rising stockpiles are a sign of falling demand," he said.



"Rising global stockpiles and sustained premiums in futures contracts over cash contracts are signs of weakening demand," Li said. "We expect copper to keep falling in the coming months."

Economic expansion in the US, the world's second-largest copper user, slowed in the third quarter to a 2% annual rate after home building fell the most in 15 years. Imports by China, the world's biggest copper user, have fallen this year because of high metal prices and may not pick up next year.

Inventories in warehouses monitored in London, Shanghai and New York rose 350 tonne to 2,35,583 tonne on Tuesday, the highest since July 2004.

That is still less than six days of global consumption. Copper for delivery in three months fell $5 to $6,325 a tonne in London on December 22. Prices have fallen about 10% this month, after a 4% drop in November.

Prices of industrial metals have soared in the past three years partly as China's booming economy stokes demand for the raw materials needed for factories, cars and appliances. Nickel has more than doubled and copper has risen 48% this year. China's economy expanded 10.4% in the third quarter.

China's copper stockpiles have fallen by half since the start of the year as users have been drawing on inventories after imports of copper and copper products fell 21% in the first 11 months of the year to 1.9 million tonne. China's copper imports are not expected to pick up in 2007 as buyers may deem costs too high. Codelco, the world's largest copper producer, raised next year's premium, the amount to be added to the London Metal Exchange cash price, by $5 a tonne to $130 for China.

Still, China's copper consumption remains "robust and will support global demand next year," Li said. China's copper usage rose 2.5% to 3.9 million tonne in 2006, according to metal industry researcher CRU. Consumption may grow at between 5-10% next year, helped by demand from the power, automobile and construction sectors.

China will produce 3.2 million tonne of refined copper next year to meet rising demand, compared with 3 million tonne this year, according to China Nonferrous Metals Industry Association. Production of copper concentrate, the main raw material, will climb 14% to 8,00,000 tonne, the association said.

Great Wall joined HSBC Holdings Plc and Calyon, the unit of Credit Agricole SA, France's second-largest bank, in predicting copper prices may fall.