China key to cop­per price

Finweek English Edition - - Creating Wealth -

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.

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