Copper prices may have hit bottom, but trends unclear
Copper price forecast revised downward
By Tom Stundza -- Purchasing, 4/30/2009 2:00:00 AM EDT
A panel of eight nonferrous metals analysts has revised downward to an average $1.53/lb the 2009 consensus price forecast for copper cathode, a 51% decline from the $3.15 average of 2008. The analysts aren't agreed, however, on whether the copper price bottom already has occurred or not.
Copper prices fell steep in the final months of 2008 with the December spot price on the London Metal Exchange (LME) at $1.39, as compared with the 2008 peak of $3.94 which was hit in April. But in the first three months of 2009, the LME spot copper price has averaged $1.55.
Bloomberg News reports that LME metals jumped in price in March as some investors bought commodities in anticipation of a rebound in global economic growth. The exchange's index of copper and five other industrial metals increased 11% in March, the most in 13 months. However, the International Copper Study Group recently announced that copper supply ended 2008 ahead of demand. Refined copper production rose by 3.4% on the year in 2008 to just over 14.7 million metric tons, the ICSG said in its latest report. Copper usage was up 1.9% in the same period to 13.9 million metric tons.
The head of research Nicholas Brook at London-based ETF Securities, who says that prices of copper "have probably found a floor" since several mining companies have cut activity in the past year due to lower prices and reduced access to financing. In a conference call reported by Reuters, Brooks predicts that copper prices in the short term will be underpinned by China, which has announced aggressive infrastructure spending.
However, the buying surge in China may not be here yet, as China's economy grew by 6.1% in the first quarter, its slowest pace in 10 years. Premier Wen Jiabao says that while China's economy is in better shape than other nations, "it is still some ways off from a full recovery."
The commodities team at New York-based J.P. Morgan Securities has written to clients that "the undeniable reality for the copper market is that outside of China, demand remains moribund." These analysts believe that a lasting recovery in copper's price still is a long way off but are reluctant to pronounce a bottom because "even with projections of a modest improvement in western world demand in the second half, when stimulus efforts start to take effect, we believe that China's growth will not be enough to offset the demand destruction seen in the western world."
Still, the J.P. Morgan analysts do see copper averaging a slightly higher $1.67 in 2010, noting that strong gains are not likely for some time due to high inventories and fairly weak overall demand.
Analyst William Adams at London's BaseMetals.com writes to clients that "Chinese buying and the ripples that causes are seen as the driving force" for higher April prices, "but the further and faster the rally goes, they more will likely they will pull back when the buying peters out."
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