Producers' Shares Hit by Plunge in Copper Prices
By Charlotte Mathews
10 Jan 2007 at 10:40 AM EST
resourceinvestor.com
JOHANNESBURG (Business Day) -- Copper producers’ shares have taken a hammering in the past seven days as global markets, reopening after the holiday break, responded to a 10% fall in the London Metals Exchange (LME) three-month copper price to $5,705/tonne in the first two days of the new year.
Metorex [JSE:MTX], which is developing a copper and cobalt mine at Ruashi in the Democratic Republic of Congo, has shed up to 11% in the past few days.
Palabora Mining [JSE:PAM] has traded as low as 13% below its end-December level, while Zambia Copper Investments (ZCI) has ranged from R16.70 to R13.50.
Negative sentiment spilled over to BHP Billiton [NYSE:BHP; JSE:BHP], which earned about a third of its profits from base metals, mainly copper, in the year to June. Its shares have ranged from R130.92 to R122.77 on JSE.
The sell-off was sparked by data from LME showing stocks of copper in warehouses rose about 5% in the first three working days of the year. According to industry website Platts Metals, LME warehouse stocks last week were about double what they were at the same time last year.
But Numis Securities analyst Simon Toyne said the copper price remained above his long-term forecast. It would be supported by China’s need to restock at some point as well as the lessening attraction of copper scrap and reduced incentives for substitution at lower prices. The first quarter of the year was seasonally weak, he said.
Sentiment towards the metal, the price of which has risen dramatically in the past few years, also turned negative on fears of slower economic growth in the U.S., the world’s biggest copper consumer after China. U.S. data have indicated a slowing of construction activity. The settlement of labour disputes among copper producers, which had given impetus to the price last year, also dampened speculative hopes of a shortfall in supply.
The fall in the price has triggered chart-based selling, which is based on the breaching of certain price levels. According to Man Metals, the next support level would be $5,000/tonne. Three-month copper was trading at $5,750/tonne yesterday. In early May the LME’s daily fix put the cash price for copper at a record high of $8,788/tonne, driven largely on fund speculation.
Labour disputes - driven partly by discontent over wages compared with high profits - also added to price volatility. |
