PERTH (Mineweb.com) -- The copper price could test December 1988 highs despite a sharp rise in global mine production.
According to the presentation delivered this week at the annual LME seminar in London by Barclays Capital analyst Ingrid Sternby, it was conceivable the copper price could spike to around US$3,500 per tonne or roughly US$1.58 per pound in the near term on the back of critically low metal stocks, a strong underlying consumption trend and anticipated robust economic growth going forward.
So far in (calendar) 2004, the spot copper price has averaged US$1.27/lb, up almost 58 percent on the average for all of 2003, and is currently trading in the high US$1.40s/lb.
“Given the current momentum, low inventory levels, underexposed consumers, underinvested speculators and our positive outlook for global growth, we believe the scene is set for a challenge of the peaks seen in 1988/89,” Sternby suggested. In December 1988 the spot price averaged almost US$3,500/t.
“The western world market is seriously short of copper,” she said. There were less than 100,000 tonnes available in the LME, 40,000t in the Comex warehouses and about 20,000t in the Shanghai Futures Exchange. “The result of all this is that the stock-to-consumption ratio has fallen to only about four weeks on a total reported basis – including estimated inventories at producers and consumers.
“This is critically low and, importantly, we think that neither demand nor supply is likely to adjust enough to refill empty warehouses in the near future,” she added. “These low inventories will maintain upward pressure on copper prices.”
In her paper, Sternby pointed out the copper market was facing a forecast supply deficit of at least 600,000t in 2004 and 337,000t in 2005. While substantial additional production has been activated (Barclays estimates about 200,000-300,000t), it was coming off a depressed base last year when the world’s largest copper mines – Escondida and Grasberg – were operating significantly below capacity. “There is still a distinct lack of large new projects coming on stream in coming years,” she contended.
In addition, “significant for a deficit market with already critically low inventories is that even though demand growth is slowing, growth remains positive”, especially in China.
Sternby – who predicted earlier this year that copper, driven mainly by physical fundamentals, would experience a second price peak following the first in March/April – doesn’t expect the 16-year-high level to be sustained “as cyclically positive factors ease back in strength”, but she does believe the price “will remain above historical averages”.
It should be “buoyed by the structural phenomenon of below-average growth in copper mine output following a decade of underinvestment, set against above-average trend growth fuelled by ongoing industrialisation and urbanisation in China and other emerging markets”, said the London-based analyst.
Dont worry about the wild daily swings in price the past two weeks, it is still in an uptrend till mid-next year at least.
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