Copper

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Feb. 10, 2006, 2:38PM
Copper Stocks Slide on Weaker Forecast

© 2006 The Associated Press

NEW YORK — Metals investors ran with the bears Friday, chasing shares of copper and gold miners lower on concerns that a cycle of rising metal prices will slow down.

Prudential cut its investment rating on the copper industry to "Neutral" from "Favorable" on weaker-than-expected demand in the U.S., South Korea, Taiwan and Japan.

In a note to clients, analyst John C. Tumazos reduced his forecast for global copper consumption growth to 4 percent from 5.2 percent, as housing starts and auto production in the U.S. are expected to decline or stay flat year over year and demand weakens in Asia.

U.S. demand fell 5.5 percent in 2005, Tumazos _ faster than the 2 percent decline he had expected. Meanwhile, demand for copper dropped 8.9 percent in Taiwan, 7 percent in South Korea and 4.7 percent in Japan. However, copper demand jumped 11 percent in China and grew 2.6 percent in Germany, Europe's largest copper consumer.

The metal has seen increased competition from substitutes such as PVC for plumbing or aluminum for wiring, the analyst said.

Tumazos expects copper to run $2 per pound in 2006, which is still well ahead of the $1.08-per-pound average between 1987 and 1997.

Copper for March delivery dropped 8.05 cents to close at $2.2245 per pound on the New York Mercantile Exchange.

On Thursday, Goldman Sachs analyst J. Alberto Arias said he sees more evidence of an extended copper cycle ahead _ not less.

"Over the past two weeks, three major copper producers have cut their 2006 production guidance by 145,000 tonnes, which supports our view of a market deficit this year," he wrote in a note to clients Thursday.

The analyst forecast a "bull-case scenario" for copper prices at $2.12 per pound, with the price floor at $1.60. He noted that Phelps Dodge Corp. and Freeport McMoRan Copper & Gold Inc., in particular, are poised to benefit from copper prices anywhere in that range.

But investors sided with the bears Friday, and Phelps Dodge, the world's second-largest copper producer behind Chile's Codelco, saw its shares slide $5.38, or 3.6 percent, to $142.62 in afternoon trading on the New York Stock Exchange, after earlier changing hands as low as $139.50.

Freeport McMoRan followed Phelps Dodge down, losing $4.68, or 8.2 percent, to $52.15 on the NYSE, after earlier trading as low as $51.19. The stock was hit not only with investor worries on copper, but also gold, which closed down $14.30, at $550.20 per troy ounce, after the week's pull back from last week's $579.50 high.

Gold stocks were down across the industry. Among the biggest losers were shares of Newmont Mining Corp., which lost $1.40, or 2.5 percent, to trade at $55.13 and Harmony Gold Mining Co., which gave up 94 cents, or 5.4 percent, to $16.39 per share.

Palladium prices also fell, pulling down the stocks of companies in that industry. Palladium for March delivery settled down $19.90, at $284.65 per ounce.

Stillwater Mining Co., which mines platinum and palladium _ byproduct minerals include copper and gold _ saw its shares slip 36 cents, or 2.7 percent, to $12.93 on the New York Stock Exchange. North American Palladium Ltd. shares shed 62 cents, or 5.7 percent, to $10.18 on the American Stock Exchange.