Copper price may stagnate at $2.34/lb in the second half
WBMS report shows plenty of price-depressing supply
Tom Stundza -- Purchasing, 6/29/2009 1:46:42 PM
Copper futures prices appear to be stuck around a $2.34lb average for the rest of the year up about 50¢ from the first-half spot-market average of $1.83.
Senior resource analyst Peter Arden at the Ord Minnett Management market research firm is even more bearish, telling the Australian media that the price of copper could slip to $2.27/lb for the rest of the year, reflecting weakening demand and growing surpluses. Still, for the year, spot copper on the London Metal Exchange (LME) looks to be poised for an annual average of $2.07, down from $3.15 in 2008.
The second-half futures-price runup appears to have been driven by speculators concerned about a possible lack of supply. However, new global copper market data from the World Bureau of Metal Statistics shows a surplus of 133,000 metric tons in the January-April period, as compared with a deficit of 161,000 in the same four months of 2008. WBMS data shows global consumption in the first four months of 2009 at 5,874,000 metric tons, which is 4.6% lower than the same period of 2008.
It is this kind of data that has caused analyst Edward Meir at MF Global in New York to suggest "it will be difficult for the (copper) complex to regroup and retest the old highs anytime soon, since outside of a weaker dollar, we see little else that could justify another upside sprint." Copper demand tied to the power and construction industries "remains patchy" and will likely trend lower as the summer manufacturing slowdowns, particularly in Europe, set in, Meir says in a note to clients.
Atop that, details have begun to surface about the Chinese government's metals buying program. Senior government officials are being quoted by Chinese news services as saying the country has stopped buying metal for stockpiling purposes for the time being. They also have confirmed for the first time that the State Reserves Bureau actually amassed 235,000 metric tons in recent months.
"This suggests that given the large purchases made to date, that there is likely a large surplus sloshing around the Chinese market," says Meir. In fact, research group Antaike estimates the surplus to be around 435,000 metric tons since the start of the year--as local and government-sponsored state stimulus spending programs have taken up two-thirds of the 1.4 million metric tons imported in the first five months. So, he suspects that "copper price rallies likely be more muted" in coming weeks and months--especially since there is no evidence that non-Chinese demand is about to explode.
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