Red-hot copper to shine even brighter as world demand soars
Robin Bromby
January 06, 2006
METAL prices are likely to get even hotter in 2007 as a pick-up in European, US and Japanese buying turns the screws on mine suppliers already struggling to meet China's demand.
Mark Pervan, head of resources research at Daiwa Securities SMBC Australia, is about to send out a client report that predicts buying by Japan and the Western world, on top of continued China growth, will exacerbate supply problems this year.
"The market is not yet taking note of this," he added.
This forecast comes as the first week of the new year shows renewed strength in metal prices, especially for copper.
A strike at the world's largest copper producer, Chile's Codelco, sent the red metal to a new record of $US4575 a tonne for three months delivery on Wednesday night, the price shooting up $US135 when trading began. It finished at $US4539/tonne.
But trading at the Shanghai Futures Exchange became even more frantic yesterday with one March 2006 delivery contract for copper going through at $US5355. This followed predictions from London analysts that the metal could soon hit $US5000 in London and New York.
Contract workers at Codelco went on strike demanding new bonuses.
Mr Pervan said Japanese and Western demand for copper fell in 2005 but would grow this year. US buying would be higher as it rebuilds the Gulf of Mexico coastline damaged by hurricanes.
More supply disruptions, and labour disputes, could be expected in 2006 with the high prices. "Supply is not going to be a clean story this year," Mr Pervan said.
ANZ Bank resources analyst Andrew Harrington said the ground rules for copper had changed. Until last year, the red metal had, over the previous decade or longer, occasionally tested $US3000/ tonne, but the price always fell back soon after.
"That old record has now been left in the dust," he said.
While demand was strong - and likely to remain so, with the Japanese economic resurgence - it was speculative buying that was pushing the prices up this week.
The strike at Codelco was all that was needed to have buyers leaping in. "They'll jump on any bits of information," said Mr Harrington.
This week's activity is in direct contrast to that last week. Then copper futures fell three days in a row after stockpiles rose.
Last week, London Metal Exchange copper inventories rose 8.9 per cent to 87,750 tonnes.
There was, however, a suspicion that Chinese authorities were shipping metal into LME warehouses in Singapore and Seoul to cover short positions.
The market is still in the dark over the rumours that an official of the State Reserve Bureau in Beijing last year shorted copper, expecting the metal price to drop.
Quite the reverse occurred. If the Chinese did short the metal, their losses would have been substantial - and they would have to buy copper to cover those positions, sending the price even higher. China accounts for 23 per cent of world copper demand.
But signs are emerging that China is trying to rein in some of its metal exports so that prices do not increase further - and also to ensure that over-capacity does not become an economic millstone in future years.
Aluminium smelter operators agreed at a meeting in Beijing last month to slice refining by 10 per cent this year in the hope of getting alumina prices down from their present levels of about $US600/tonne.
Xinhua has reported that Beijing would curb investment in copper smelting this year. Last year, its investment was 90 per cent higher than in 2004. |
