Copper prices could explode if dollar weakens
Problems with financial bailout could boost metal prices
By Tom Stundza -- Purchasing, 9/24/2008 4:04:00 PM
Debate over the Bush administration’s financial sector rescue plan in Washington could weaken the dollar’s value further against foreign currencies, analysts suggest. They also say that might send world copper prices higher than the current month-to-date average of $3.19/lb and back toward the year-to-date average of $3.62.
Federal Reserve Board Chairman Ben Bernanke warns the current Wall Street crisis may drag the U.S. economy into a deeper downturn and urges swift action on the proposed bailout. However, the dollar has dropped to 68¢ against the Euro amid concerns that the bailout plan is becoming bogged down in political bickering.
World copper prices averaged $3.25/lb in 2007 and the consensus forecast for 2008 initially was $3.73 because of expected strong demand from China. However, the monthly averages for world copper prices have been erratic all year, starting 2008 at $3.20, rising to a peak of $3.94 in April and staying elevated until slippage began in August.
This month, copper prices have been relatively stable--around $3.20. World spot copper today is $3.21 and red metal for delivery in three months is at $3.19 on the London Metal Exchange. That’s because “there are simply too many balls in the air--each with a different bias on prices--to allow copper market participants a clear read on where prices are heading,” says analyst Edward Meir at the MF Global’s trading desk in New York. “While far-out prices may not be participating in rallies to record highs, they also do not seem to be falling much either.”
Approval for any financial bailout likely will drag out for many more days, if not weeks, according to some economists. “What this could mean for commodity markets in general and for metals, in particular, remains to be seen,” says Meir in a note to clients. “On the one hand, further wrangling could result in more weakness in the equity markets, and unhinge the commodity markets. On the other hand, a delay could also weaken the dollar, and send sidelined money towards hard-asset inflation hedges, like metals.”
He also points out that when the bailout is confirmed, the dollar could strengthen markedly “and we could see a broad-based selloff in nonferrous metals investments.” That’s why he suggests that prices over the next week or so “will, therefore, be very whippy.”
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