Copper

[kraftdinner]

Copper stocks rising, but medium term picture still positive
By: Charles Carlisle
Posted: '27-OCT-06 10:00' GMT © Mineweb 1997-2006



LONDON (Mineweb.com) --LME copper stocks have been rising over the past week, which will undoubtedly take some of the pressure off prices and these may well decline next week as a result after a steady run over the past week. Indeed copper has stayed around the $3.50 a pound level for the past four months with a few surges and drops above and below this level. At the time of writing the metal price was around the $3.43 mark.

While stocks have been rising since the middle of the month, this position does not seem likely to be maintained long term. One of the most consistently accurate of copper forecasters, Peter Hollands of Bloomsbury Mineral Economics, noted at a recent Mining Journal 20:20 event that this year’s deficit in supply to demand is likely to be some 330,000 tonnes of copper concentrates, 270,000 tonnes of refined metal and some 250,000 tonnes in copper futures. He went on to say that only a substantial release from China’s strategic stockpile had helped keep the copper price in check from an even greater price surge.

Hollands considers that copper supply will actually remain in deficit through 2007 and may only move into surplus in 2008 – and then the surplus is only likely to be small.

The current position is confirmed by low smelting and refining charges and high prices for the metal which is typically representative of poor mine production, big shortfalls in refined metal supply – with the whole picture exacerbated with a major increase in investment demand through commodity funds.

Although Hollands’ views contradict those of some other analysts, it is perhaps worth remembering that Chip Goodyear, CEO of the world’s largest producer, BHP Billiton, recently pointed to difficulties in increasing production because of labour and equipment availability constraints – and there is also the tendency to mine lower ore grades when prices are good, which also reduces metals output. As will have been noted, many major mining companies have been reporting production shortfalls recently, but mitigated by the high prices which mean that profits have been rising despite the production shortfalls.

If one looks to the copper refiners for the last word on this subject – if they felt that copper was likely to go into surplus in the short to medium term, they would hardly have caved in over the reductions negotiated in charges to the extent they did!