Copper price slippage continues
Source: Purchasing
metalsplace.com
The slippage in copper over the second half of 2006 and early in 2007 proves what can happen to commodity prices as extreme tightness in the market eases. That's the view of analyst Freddie Duff Gordon at Natexis Commodity Markets, who agrees that this year's price average will come under the $3.05/lb of 2006.
Gordon e-mails Purchasing.com from London that inventories of copper cathode are increasing in response to weak demand in the U.S. and reduced imports by China – and that has driven the London Metal Exchange (LME) cash quote this week to $2.45/lb, which is approximately 38% below the May 12, 2006 peak of $3.99. In fact, warehouse stocks have climbed steadily to reach almost 276,000 metric tons this week – or 4.6 days of global consumption – and most analysts are projecting a surplus for the year.
So, the latest consensus price forecast is $2.75/lb for 2007, according to tabulations this week by Merrill Lynch & Co. Analyst Daniel Hynes in Sydney sees further downward pressure on near-term prices because of the start of the Chinese New Year next week. "With the country on holidays for the second half of February, absent Chinese buyers will put downward pressure on already falling copper prices," writes Hynes.
Gordon at Natexis adds that with so many fund managers involved in copper speculation, "a constant stream of bullish news is required to keep prices at inflated levels and once this news flow dries up the downside potential is significant." While it is very difficult, if not impossible, to second guess the plans of the investment funds, Gordon writes, that "it appears that some investor interest has switched from copper to aluminium." That's why he believes the fund managers "will provide less support to prices than they have in recent years." |
