Analysts are slicing copper’s price forecast

Reduced demand form housing is a key factor

By Tom Stundza -- Purchasing, 10/1/2008 11:30:00 AM

Year-to-date London Metal Exchange (LME) cash copper has averaged $3.62/lb. But Bob Garino, director of commodities for the Institute of Scrap Recycling Industries, says MF Global analysts expect a fourth-quarter average price $3.06. MF Global Analyst Edward Meir says the average price will be about $3.40 for the full year. Market prices, he believes, will be severely tested over the next three months.

Garino, who writes the Commodities Update blog for www.purchasing.com, says Macquarie Research’s latest view on copper has it averaging $3.57 for this year and $3.00 for 2009. Copper averaged $3.25 in 2007 with the earlier consensus forecast for 2008 at $3.73. Looking ahead, copper will average $3.28 next year (a 30¢ decline from the previous consensus), $2.88 in 2010 and continue its slide through 2012, according to 12 analysts surveyed this week by Bloomberg News.

The higher prices earlier this year came from a supply deficit. A quick look at the fundamentals reveals that global refined copper consumption exceeded production by 130,000 metric tons between January and June this year, versus a deficit of 264,000 tons over the corresponding year-ago six-month period. The International Copper Study Group also reported that world refined copper output in January to June was 9.11 billion metric tons, while consumption totaled 9.24 billion metric tons.

Meanwhile, another analyst says the red metal, used for electrical wire and water pipes, may drop as low as $2.75/lb by Dec. 31 in trading on the New York Commodity Exchange (Comex) unit of the New York Mercantile Exchange. The price will fall from $2.89 today as demand from the residential-construction industry worldwide declines, according to analyst Michael Pento at Delta Global Advisors in Holmdel, N.J.  

Builders use about 400 pounds of copper in a typical U.S. home, so prices may fall more than other industrial metals because the housing market is collapsing. Economists expect U.S. growth to slow to 1.5% next year from 1.7% expected in 2008. So, “people realize that our worst fears about the economy are true, and there's going to be very little demand'” for copper, says William O’Neill, a partner at Logic Advisors in Upper Saddle River, N.J.