SPOTLIGHT: Copper's price is what it is, mines in the driving
2007-06-14 12:13 (New York)
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London
14-Jun-2007 17:12:01
Copper's price is what it is, and it's the mining companies and hedge funds who have done best out of it, is the message
that came out of MB's 20th International Copper Conference this week.
The red metal rose to $8,000 - a pinball of speculation in the words of Christoph Geyer, general manager at fabricator
KME Germany - and smelters in particular have lost out.
While profits at mines equalled 64 percent of the copper price, at smelters the comparable figure is just 5 percent
according to Kit Katazawa, general manager of research at Pan Pacific Copper.
"You can easily see who holds the balance of power," he said. "We need to increase concentrates supply and cut smelter
overcapacity."
Earlier Javier Targhetta, president of Atlantic Copper in Spain, reported the return on investment at mines stands at 18
percent, while at smelters it is just 4 percent over a ten year average.
Given the risks involved, this is a "fair" return for the mines, he said, but conceded smelters are not significantly
recognised.
In a similar vein, Luc Delagaye reported the traditional partnership between smelters and miners is under threat.
Without price participation, and with too many smelters chasing too few concentrates, treatment charges/refining charges
have halved since 1997.
It's not necessarily a prettier picture at the fabricators, speakers reported.
Simon Payton, secretary general of the International Wrought Copper Council, explained producers hold the advantage.
With endemic overcapacity in the sector, fabricators tend to be squeezed: they buy in a sellers' market and sell in a
buyers' market.
KME's Geyer spoke of a structural shift in demand to plastics from copper.
"Those who are profiting most today from the high copper price will be those who suffer most by tomorrow," he said
concluding his presentation with a slide of a closed mine.
Copper might not be substituted in more advanced applications but for more general usage that process is already
underway.
Prices might not be reflective of supply and demand, but they are where they are, Geyer said.
"You either have free markets or you don't," Payton told delegates. "The price is what it is. We have to accept it."
Rio Tinto's chief executive of copper, Bret Clayton, also spoke in favour of price discovery at the Londo Metal
Exchange, dismissing calls for long-term contracts.
"We don't see any need for changes," he said. "We prefer open, transparent markets."
Analysts Robin Bhar of UBS and Michael Dixon of AME Mineral Economics said there might soon be some respite from high
prices.
Bhar predicted copper will trade in a range of $6,000-7,000 per tonne basis three months for instance. "2007 will be a
good year for copper, but not a great year," he said.
Meanwhile he suggested a long-term price average of 150 cents per lb (Dixon was higher at 160 cents) would be more
appropriate. That compares with 71 cents in 2002, and his estimate of 300 cents for 2007.
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