Copper supply cut may hit price if growth resumes
GLOBAL copper supply may increase by less than previously expected this year and next year as producers face power and water shortages, says Credit Suisse Group, and prices may surge should US economic growth pick up.
Supply of the metal, used in wires and pipes, may rise 1.9 per cent in 2008, compared with a previous forecast of 2.3 per cent, Credit Suisse analysts, including Jeremy Gray and Ephrem Ravi, said in a report this week. Growth in 2009 may be 3.3 per cent, down from 3.6 per cent projected earlier.
Copper futures on the London Metal Exchange have more than quadrupled since 2002. The benchmark three-month contract on the LME, which reached a record $8800 a tonne in May 2006, traded at $7770 in Singapore this week, while March-delivery copper on the Comex division of the New York Mercantile Exchange stood at $3.5410 a pound.
‘‘ If copper can hold firm and trade through this current slowdown, then it could set the scene for a major spike in prices in the back end of 2008 and 2009,’’ the Credit Suisse report said. ‘‘ We estimate that at least 700,000 tonnes of copper supply will slip’’ between 2008 and 2012, it added.
Under the worst-case scenario for demand growth of 0.9 per cent for 2008, the copper price could fall to $2.60 a pound, while growth of 1.6 per cent may give a price of $3 a pound, and 2.9 per cent growth may lead to $4, the report said.
If the US economy rebounds strongly in the second half of 2008, demand growth could be as much as 6 per cent in 2009, with prices then ranging from $4.50 to $6 a pound depending on the extent of this year’s slowdown, it said.
Global copper demand hasn’t slowed with the slumping US economy because China has buoyed the market, says Don Lindsay, chief executive officer of mining company Teck Cominco.
An economic slowdown in the US doesn’t ‘‘ seem to be having much of an effect’’ on copper consumption, Lindsay says on a conference call with investors. Employment fell in the US last month, the first decline since 2003, while services industries shrank the most since 2001, reports this month showed.
Copper has more than quadrupled in the past five years as demand boomed in China, the world’s largest metals buyer. The world’s most populous nation swapped places with the US as the biggest copper consumer in 2002 and now accounts for 27 per cent of world demand, compared with 12 per cent for the US, according to New York-based commodity researcher CPM Group.
‘‘ If China keeps going, regardless of what happens in the US in terms of a slowdown, it does suggest copper will remain tight,’’ says Lindsay, whose company is based in Vancouver. Copper inventories tracked by the London Metal Exchange have fallen 19 per cent this year to the lowest level since October 29. Bloomberg