Copper stocks reach new high, prices slide
By Staff -- Purchasing, 3/11/1999
As producers pump out more copper than the globe needs, world warehouses are bulging and prices continue to slide. Copper for March delivery averaged 64¢ in New York, the lowest price on the Comex division of the New York Mercantile Exchange since May of 1987."Absent a significant round of production cuts or a sudden change in sentiment about world growth, we fear that prices will continue to slide lower," says analyst Adam Rowley at Macquarie Equities in London. "We have room for copper prices to fall another 3 or 4 cents, and further stockpile increases are expected," says analyst William O'Neill at Merrill Lynch in New York.
Global copper mine production rose to 11.860 million metric tons in 1998, up 3.3% from year-ago, according to Bloomsbury Minerals Economics. Mine output will increase 2.8% this year, to 12.19 million tonnes, Bloomsbury projects. Announced production cuts at older smelters and refineries won't suffice to end the current price-depressing surplus from new capacity coming on line, says economist Kevin Norrish at Barclays Capital in London.
"Production will continue to grow," Norrish says. "Unless there are some fairly big cutbacks, we're certainly headed for a big surplus" of about 400,000 tonnes. Norrish expects an average LME copper price of $1,580/tonne in 1999, down from an average $1,675 last year.
Consumption has waned among fabricators in Asia and increasingly among European users during the past 18 months. Inventories of copper stored in London Metal Exchange warehouses have more than doubled since September, closing January at 646,675 tonnes. Stockpiles exceeded the previous record of 645,300 tons set in January 1978.
For consumers, record-high stockpiles indicate that copper prices could stay close to the 12-year lows they're trading at now. For producers, the mountain of copper is a sign that the bill is coming due for years of over-production, though many remain reluctant to idle factories. Analysts expect stockpiles to continue rising in the weeks ahead, posting new record highs day after day.
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