Commodity Strategists: Copper to Rise 17%, Black Says 2005-12-01 09:34 (New York)
By Simon Casey
Dec. 1 (Bloomberg) -- Copper may rise another 17 percent
after reaching a record as Chinese stockpile sales fail to fill
a production shortage, according to Herbert Black, a Montreal
scrap dealer who says he made ``in excess of $100 million'' when
copper plunged nine years ago.
Demand for the metal is so great that sales by China's
State Reserve Bureau, the country's stockpiling agency, of as
much as 107,500 tons of copper won't curb price gains, he said.
The metal, used in the making of power cables and plumbing
equipment, may rise to as high as $5,000 a metric ton in coming
months, according to Black. It was at a record $4,315 a ton on
the London Metal Exchange today.
``I am extremely bullish on copper,'' Black said in a Nov.
28 phone interview from Montreal. ``An extra 100,000 tons of
material is not relevant really; it's just a needle in a
haystack.''
Alongside his brother Ronald and son Ricky, Black owns
American Iron & Metal Co., a Montreal-based scrap-metal trading
company with annual sales of C$850 million ($730 million). It
also has a unit that makes electronic solder, with production
across five continents, according to the company's Web site.
Black trades copper on his own account, his most successful
wager being his 1996 bet that the metal was overvalued. On June
14 that year, Yasuo Hamanaka, the chief copper trader at
Sumitomo Corp. in Tokyo, was fired after making unauthorized
trades to prop up prices, costing his employer $2.6 billion.
`Too Excited for Golf'
Black, 61, who was nine holes into a round of gold at the
Elm Ridge Golf & Country Club the day he heard of the scandal,
immediately guessed copper was about to drop.
``I was too excited to play golf,'' he said in an interview
in 1996. ``I knew then that the copper market rally was over.''
Copper on the LME plunged 20 percent that month.
This time, Black is betting the metal is poised to extend
its gains as China fails to assuage speculation it doesn't have
enough of the metal to reduce losses from wrong-way bets by
government trader Liu Qibing.
The State Reserve Bureau, or SRB, sold 47,500 tons of
copper from its inventories in November and will offer as much
as 60,000 tons in coming weeks.
``There's no room for error in the equation, and that's why
this thing could easily bolt to $5,000,'' Black said.
Copper production is forecast by analysts to lag behind
consumption this year and next. The shortfall will be 343,000
tons this year, South Africa's Standard Bank Group forecast in a
Nov. 1 report. In 2006, there will be a 200,000-ton deficit,
Credit Suisse First Boston said in a Nov. 21 report.
The price of copper for delivery in three months has
doubled in the past two years. It's up 35 percent this year.
Liu's Trades
Liu, who traded copper for China's State Regulation Center
of Supplies Reserve, made money-losing trades as a result of his
personal actions, not those of the government, the state-
controlled China Daily reported Nov. 17. The SRB is selling
inventory to cover trades involving about 130,000 tons, the
newspaper said last week.
By building a short position, a speculator enters a
contract pledging to deliver a commodity by a specific date at a
preset price. Liu's bet was that prices would fall, enabling him
to make delivery with cheaper supplies.
Black already holds copper and plans to offload the metal
at a future date for more than he paid for it. The date on which
the position will be closed has been put back, or ``rolled,'' as
his optimism has grown, Black said.
``At $3,600 everybody was telling me I should take my
profits,'' Black said.
Unforeseen Events
As well as rising Chinese demand, copper users have been
left facing a production shortfall in 2005 because unforeseen
events cut output at mines and smelters.
In Chile, the world's largest copper-producing nation, the
Collahuasi mine, owned by Falconbridge Ltd. and Anglo American
Plc, lost 20,000 tons of production in the first half due to a
conveyor system failure. Cerro Colorado, a mine owned by BHP
Billiton, the world's No. 1 mining company, lost output after an
earthquake in June.
A fuel shortage in Zambia, Africa's largest copper-
producer, cut output at plants operated by Glencore
International AG and Vedanta Resources Plc in October. Asarco
LLC, the second-biggest U.S. copper producer, suffered a four-
month strike at plants and mines in Arizona and Texas, which
curbed production.
`Super Cycle'
Copper prices may exceed analyst forecasts made at the
start of this year. The metal is set to average $2,646 in 2005,
based on the median estimate of 22 analysts surveyed by
Bloomberg News in January and in December 2004. On the LME so
far this year, copper has averaged $3,427.
Copper may not average less than $3,500 a ton in 2006,
Stephen Briggs, an analyst at Societe Generale in London, said
in a Nov. 21 report. In October, he forecast the metal would
average $3,120.
The metal may rise to as much as $8,000 over the next two
years as supply continues to lag behind demand, Credit Suisse
First Boston said in a Nov. 21 report.
In February, Citigroup Inc. analysts forecast an
``extended'' period of higher prices, also labeled a commodities
``super cycle,'' as mining companies struggle to satisfy Chinese
demand. Black subscribes to the same view.
``I am extremely bullish on copper, aluminum, lead, on
zinc,'' Black said. ``They are all strong; they are not
weakening.''
--Editor: Carrigan (jnp) |
