Oct. 22
Copper may surge as Year 2000 problem hits mines, say analysts
Copper prices could rise and price movements become more volatile as 2000 nears and the ''millennium bug'' computer software problem disrupts power supplies to mines and smelters, analysts warned today.
Businesses and governments worldwide are racing to replace old computer systems that don't recognize the date 2000. Some analysts say these systems could fail as 2000 approaches, forcing everything from cash tellers to giant power stations to malfunction, with possibly catastrophic results to economies.
''Consider a mining company which is only 70 percent convinced that their mine or even power provider is year 2000 compliant,'' said Martin Squires, analyst at London Metal Exchange brokerage Rudolf Wolff and Co. Ltd. ''Will they risk sending their workers into the mine? How long will it take to restore power or re-open the mine if problems occur?''
Speaking at the Rudolf Wolff ''Copper Breakfast'', one of several seminars organized as part of a week-long gathering in London of about 5,000 metals traders, producers and consumers, Squires said this fear over the impact of the computer problem will likely prompt consumers of copper to build up reserves.
''With the possibility that trade flows may be disrupted for an unspecified period, globally, industry will look to build stockpiles ahead of 2000, switching from just-in-time to just-in-case inventory. This is expected to boost metal demand and price during the second half of 1999.''
Consumers of copper, such as wire and cable manufacturers, have this year been buying most of their metal for immediate delivery rather than for future delivery, according to traders. Falling prices, due to weakening demand in Asia, mean consumers can save money by waiting until the last moment before buying.
Copper prices on the LME, where 90 percent of the world's base metals are traded, are currently about 25 percent below their levels a year ago because of recession in countries like Japan and Korea. Concern over a slowdown in the U.S. economy --the world's biggest copper consumer -- and in Europe is continuing to drive prices lower, traders said.
Copper for delivery three months forward, the benchmark LME copper contract, today fell $8, or 0.5 percent, to $1,632 a metric ton.
Besides consumer concern over the ''millennium bug'' and a possible surge in demand late next year, a return to strong global economic growth, and in turn higher copper prices, won't be seen for three years, according to a forecast today by HSBC Securities.
''HSBC forecasts, which are not far from consensus, point to the slowest consecutive three-year period of growth since the Second World War,'' said Doug Upton, head of commodities research at HSBC.
HSBC is forecasting world economic growth this year of 0.7 percent, followed by 1.4 percent growth in 1999, and expansion of 2.7 percent in 2000.
''The long-term nature of investment in the mining industry means that any slowdown in economic activity is unlikely to coincide with a period of low growth in metal output capacity,'' Upton added. ''The current double-whammy in the copper market couples a demand slowdown with a period of rapid (increase in) mine and smelting capacity.''
The world copper market is therefore expected to be have a surplus of 272,000 metric tons this year, more than doubling to a surplus of 569,000 tons in 1999. Total consumption of refined copper this year is expected to be about 11.495 million tons, according to HSBC.
Upton said the best chance of a reduction in these surpluses and a recovery in copper prices will come from mine and smelter production cutbacks, as a result of companies being forced to close because they are running at a loss.
''There has been some 300,000 tons of mine output taken out from the market, and around 150,000 to 200,000 tons of smelting capacity taken out since the beginning of this downturn.''
''Even with these production problems and output cuts, mine production growth over the two-year period looks like coming in at around 15 percent. The market will need another 300,000 tons taken out of both mining and smelting next year in order to keep the market in some sort of balance,'' Upton said. |
