Copper price slide could be temporary
Purchasing Staff -- Purchasing, 5/3/2004 6:00:00 AM
There has been a rapid decline in the world copper price over the past month (from $1.41/lb at the start of April to $1.25 on the last trading day), driven by indications that the Chinese government is attempting to stop its economy from overheating. However, global industrial production continues to recover and this has correlated historically to a recovery in commodity prices. In the case of copper, the fact that global inventories have fallen by 70% since the start of the year should not be taken lightly.
Assuming that global demand growth runs the expected 6% to 8% this year, China would have to switch from growth to depression for the next 12 months in order for the copper market to experience a surplus, says analyst Jon Bergtheil at J.P. Morgan Securities’ offices in London. “Only at that point would the current extremely low inventories start to build up, albeit slowly,” and still not enough to push prices into a collapse. Through April, the world copper cathode price average is $1.26. “While a sizeable presence in the copper market, China is only 20% of demand and less important to long-term pricing than the other 80%,” he says. “Given the current inventory level and positive demand/supply balance globally, we reckon a 75% probability that copper will stay above $1.15/lb for the balance of 2004.” Even at the a price point, given the improvements in manufacturing in the U.S. and Europe lately, he suggests that J.P. Morgan’s overall $1.20/lb forecast for the average copper price in 2004 “could prove to be too conservative.”
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