Copper's Prospects Remain Solid
By MATT DAY Barron's SATURDAY, OCTOBER 1, 2011
The industrial bellwether copper has been making headlines, sliding 25% in September on fears about global economic growth. Prospects for copper-heavy goods have faltered in the face of the euro-zone crisis, sour economic indicators and manufacturing sectors struggling world-wide. The metal is linked with growth because of its use in making everything from cars and consumer electronics to wiring.
But copper futures' plunge to 14-month lows presents an opportunity for those taking a longer view. The market may expect further declines in the short term, but prices should stabilize and resume climbing in the coming months. Supply concerns will help, but the rise will be mostly powered by the Chinese economic locomotive. And that engine should be able to drive prices, despite the specter of a slowdown in Europe and the U.S.
Goldman Sachs this month said only a global setback on a par with the 2008 crisis would derail its bullish view on copper, citing in particular China's monetary-policy options to provide "a strong line of defense" for its economic engine. Morgan Stanley added last week that Chinese buyers would "aggressively restock" metals inventories in the event of a developed-market recession, taking advantage of lower prices after spending much of this year working to avoid paying copper's near-record price. China, which consumed 40% of the world's refined copper last year, imported 1.5 million tons of copper through August, with analysts estimating the country may import as much as one million tons in the fourth quarter.
On Friday, copper settled down 2.9%, at $3.152 a pound on the Comex division of the New York Mercantile Exchange, down 30% this year.
The bull run in copper earlier this year was sparked by lack of the metal in the world marketplace. Prices were pushed by projections that slow-growing mine output would fail to keep up with demand. That panned out during the first half of the year, with the International Copper Study Group saying the shortfall totaled 130,000 metric tons in that period. Those conditions haven't gone away. Strikes at major copper mines in South America and Southeast Asia have failed to catch the interest of investors closely watching Europe's debt crisis and other headwinds to expansion.
Few analysts are willing to offer predictions on exactly when the pressure on copper prices may begin to ease. But China should both carry and drive copper prices despite any macroeconomic swirl. Little is capable of stopping that train.
