Copper Market Set for Catastrophe, Threlkeld Says (Update1)By...

Copper Market Set for Catastrophe, Threlkeld Says (Update1)

By Glenys Sim

Feb. 2 (Bloomberg) -- Copper prices, which more than doubled last year, are set to plunge as speculators unwind positions and global inventories expand, according to David Threlkeld, president of metals trader Resolved Inc.

Were going to see a catastrophe in the market, said Threlkeld, who first got the worlds attention in 1996 when he showed that hoarding by Sumitomo Corp.s Yasuo Hamanaka would lead to a collapse. Prices may slump to less than $1 a pound, he said by phone. That about 67 percent less than todays levels.

Copper, used in pipes and wires, sets the pace for other industrial metals. A slump in prices may reduce profits at mining companies including Freeport-McMoRan Copper & Gold Inc. and drag other commodity prices lower.

Some 90 percent of buying has been from speculators, said Threlkeld, who has traded the market for more than 40 years. Whether they are exchange-traded fund speculators or China pig farmer speculators it doesnt really matter, because that buying is going to come back to the market, he said from Arizona.

Three-month copper futures on the London Metal Exchange, which surged 140 percent last year after governments spent billions of dollars to lift their economies out of recession, traded today at $6,750 a ton. China, the worlds largest user, imported a record 3.2 million tons of the refined metal in 2009, up 119 percent from the previous year.

Interest Rates

There are about 3 million tons of unreported inventories in China, said Threlkeld. The forecast for a slump to less than $1 a pound -- equivalent to $2,205 a ton -- may be driven by higher interest rates in China and the U.S., he said. The prediction reiterates an earlier call and didnt come with a timeframe.

Three million tons seems a bit excessive, given that thats more than half of Chinas total consumption last year, said Li Rong, chief analyst at Great Wall Futures Co. Chinas copper consumption was about 5 million tons in 2009, he said.

Chinas gross domestic product accelerated to 10.7 percent in the fourth quarter, the fastest pace since 2007, adding to speculation the country may step up efforts to prevent asset bubbles. The International Monetary Fund says Chinas growth will accelerate this year to 9 percent from 8.5 percent in 2009.

The way the figures are being reported is anything thats shipped to China is assumed to be consumed, which is clearly ridiculous, Threlkeld said. Stockpiles monitored by the Shanghai Futures Exchange totaled 101,210 tons last week, more than three times the level a year ago.

Unique Situation

What we have now is we have a unique situation, whereby we have a surplus and production has gone up and consumption has gone down, he said.

Output exceeded demand by 191,000 tons in the 11 months to November 2009, the World Bureau of Metal Statistics said on Jan. 20. Inventories monitored by the London Metal Exchange grew about 48 percent last year and stood at a one-year high of 543,525 tons yesterday.

The price of copper is not just a function of how much inventory there is in the market, said Li Junchao, an analyst at Western Mining Co.s futures department. While its true that prices last year rallied way beyond their fundamentals, we expect the market to normalize this year and $1 doesnt quite seem feasible.

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