FOCUS-Copper meeting finds no consensus on market
By Derek J. Caney
biz.yahoo.com
Monday April 6, 12:14 pm Eastern Time
TUCSON, Ariz., April 6 (Reuters) - The American Copper Council's Copper College ended this year with no clear consensus of the next move for copper.
The logistical problems stemming from the logjams along the Union Pacific Corp (UMP - news) rail lines in the South, plus a tight scrap market, plus what one consumer called ''good old fashioned strong demand,'' kept most people satisfied with the short term picture.
But with copper prices languishing near four-and-a-half year lows betrayed and underlying pessimism driven by uncertainty in Asian economic outlook and looming increases in production in the coming years.
Asarco Inc (AR - news) kept to its time-honored tradition of adhering to the best case scenario. ''As we examined current supply and consumption, they appeared to us to in balance despite the falling Asian demand,'' said Asarco's president and chief operating officer Frank McAllister, the meeting's keynote speaker.
Before the Asian currency crisis, Asarco anticipated 1998 demand growth from Asia excluding Japan to be 6.2 percent over 1997, McAllister said. The company has since revised its estimate to 2.3 percent.
''Although the percentage change in GDP growth is significant, the absolute tons of copper consumption is not that large as this part of the Asian market only represents 13.5 percent of western world consumption,'' McAllister said.
The best case scenario for Asia, according to Alison Reese, an analyst with NationsBank, would be ''a difficult time for their economy over the next 12 months,'' while the worst case scenario would be political rebellion, recessions, currency devaluations and stock market declines.
She added that she was more inclined to believe the best case scenario.
She said that the Japanese economy would be ''limping along'' with GDP growth at slightly more than 1 percent.
Reese told attendees that China would maintain its currency valuation, although growth in the country would be expected to be slower amid lower imports and higher exports.
Martin Armstrong, chairman of Princeton Economics International, said that copper prices looked like they were reaching the bottom of the market. ''It looks like 70 cents will be the low of this market,'' he said. ''Prices should recover from there. Certainly we wouldn't expect to see prices fall below 60 cents a lb.''
Frederick Demler, minerals economist with ED&F Man International Inc's metals division said he expected the markets in general to turn lower in 1998 as a result of the currency crisis but would turnaround in 1999.
''We would expect crisis in the Far East remain contained within that region,'' Demler said. ''The U.S. and Canada economies should see some slowdown, but still positive growth and a rebound in 1999.''
Copper prices would not be able to take advantage of the turnaround, however, because of the large production builds that are expected next year, he added.
Mine production is expected to increase 5.3 percent in 1998 to 9.9 million tonnes and 8.6 percent in 1999 to 10.8 million tonnes.
He predicted copper prices to average 80 cents this year and 75 cents a lb next year.
BHP Copper also sees storm clouds on the horizon. ''We're not real optimistic about the copper market these days,'' said Harry Smith, group general manager for BHP Copper-North America, a unit of Broken Hill Proprietary Ltd (BHP.AX), in an interview with Reuters. ''I don't know how long prices are going to remain this low, but I don't think things are going to improve any time soon.''
Also addressed at the meeting in an impromptu panel was the rising spot merchant premiums, despite the market's low price and apparent oversupply.
Spot premiums have nearly doubled in most locations around the country as a result of the scrap tightness and the Union Pacific problems.
While conventional wisdom states that scrap supplies dry up as COMEX falls because the scrap dealers' inventories are devalued, Bernie Schilberg, executive vice president of Schilberg Integrated Metals tried to debunk the theory, noting that manufacturers have been becoming more efficient and generating less scrap.
Meanwhile in the Midwest, consumers are seeking alternatives to shipping metal via the Union Pacific rail lines. Since August, Union Pacific shipments have slowed as a result of the company's lack of infrastructure to support the 1996 merger between Union Pacific and Southern Pacific.
In some instances, some merchants have taken to the highways shipping copper via truck at an additional cost of approximately 0.50 cent to 1.00 cent a lb.
In other instances, some merchants are bringing in metal from South America. One vessel is reportedly on its way to the London Metal Exchange warehouse in New Haven from Chile and another is believed to be coming into New Orleans from Peru.
''Any way you look at it, rail-free material is getting more expensive,'' said one producer. ''And it's going to stay that way until Union Pacific gets its act together or until the summer comes and the consumers take their maintenance shutdowns.'' |
