Cop­per sup­ply cut may hit price if growth re­sumes

The Weekend Australian - Travel - - Resources -

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

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