China key to copper price
relatively stable. But for researchers such as Vivek Tulpule, the chief economist at the Rio Tinto group, that’s no surprise.
He points out the balance between supply and demand is such that a real bear market isn’t likely in the copper price. China is the key here, since it can make up for the fallback in demand in the United States, especially as a result of the smaller number of new houses being built. For example, in China it’s expected that about 20 cities the size of New York will have to be built over the next two decades to accommodate the massive inflow of people to its industrial centres.
However, so far this year the Chinese demand has been relatively weak, since the country has built up a stockpile of copper over a long period. As that copper is used, demand will strengthen, Tulpule says. “In the coming months conditions should develop that are favourable for strong buying.” According to indications, the Chinese economy – which is to a considerable extent resistant to a US downturn– should continue growing strongly, he says.
It’s also important to remember new production is relatively limited, bearing in mind the growth in demand expected in countries such as China and India. At the same time, many of the large, existing copper mines are having problems trying to increase production because, among other things, ore grades are falling.
On the JSE the price of the only large copper producer – Palabora Mining (Palamin) – had
fallen by 53% since June to 7600c/share, before a degree of recovery occurred. It currently stands at a low historical earnings multiple of five, as well as an oversold level last seen in 2004. If Tulpule is right in his predictions on the prospects for copper, Palamin’s price should offer good prospects for recovery.
* Aluminium is another commodity where Rio Tinto’s chief economist predicts a bull market, based among other things especially on the huge investments being made worldwide in power generation.