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Gold/Mining/Energy : Mining News of Note -- Ignore unavailable to you. Want to Upgrade?

To: LoneClone who wrote (36445)	5/1/2009 6:02:00 PM
From: LoneClone	Read Replies (1) \| Respond to of 193999

Copper price seen falling, then hitting new highs miningweekly.com By: Reuters 30th April 2009 LAS VEGAS - The recent copper price rally does not reflect weak demand for industrial metals and will likely fall before rising again, panellists said at the 2009 Institute for Scrap Recycling Industries' (ISRI) convention. "I think copper's price direction is more down than up. The current price of copper does not reflect that we're in the most severe economic recession and downturn in demand since WWII," said Neil Buxton, managing director at GFMS Metals Consulting in London, describing copper's price recovery as W shaped. "We are in the middle of the W where there has been a rally and we find it hard to justify from a fundamental standpoint. Therefore, we believe the next major move is down," he said. Chinese influence has been key to short-term copper gains, but analysts believe those supportive factors will not last. China's State Reserve Bureau was widely thought to be buying copper, with many traders viewing those purchases as an inventory shuffle and that it would land back in the market. Buxton disagrees and thinks they were long-term purchases, taking metal off the market for the next three or four years, but the buying will soon end because of the higher price. A fall in copper inventories and a rise in cancelled warrants - material tagged for delivery - have helped lift prices for the metal more than 40 percent so far this year. On Thursday, copper was up around 3 percent. Daniel Edelstein, copper specialist at the US Geological Survey, agreed SRB copper purchases were unlikely to continue with copper's recent price rise. The SRB's purchases were considered an accumulation of opportunity at low prices. Another key factor behind Chinese buying has been the differential between copper prices on the London Metal Exchange and the Shanghai Futures Exchange. DIFFERENTIAL While some Shanghai premium will always exist to reflect China's huge imports of refined copper along with its healthy consumption trends, Buxton said differential was out of kilter, driven by the tightness of scrap supply. "It is our view that the differential will decline sufficiently, that the current balance of trade will be diminished," he said. Edelstein called China "the 500 lb gorilla in the room" after its double-digit growth and 6 percent refined consumption growth last year. Predictions out of Beijing call for 6,5 percent growth in net cathode demand this year. But he pointed out that some semi-finished copper products fell sharply last year, indicating a more modest demand growth by China that should tame the Shanghai premium. A recent pick-up in scrap purchases to take advantage of the LME/Shanghai price differential, also lifted the copper price, but Buxton said scrap is more price responsive than any other form of copper supply and should slow as prices rise. Taking China's buying out of the equation, he questioned whether copper was fundamentally any different than the other industrial metals with prices between 60 and 80 percent of the marginal cost of production. Copper stands out with a price that has held above the marginal cost of production around $1.50 a lb, leading Buxton to surmise its price will drop to adjust to weak demand. Copper users like semi-fabricators, brass mills, and tube mills show no pick up in demand, with order books at low levels, lead times at minimal levels and margins being squeezed by a relatively high copper price. Looking at the top 10 copper consuming countries, only China and India are forecast to show positive GDP in 2009. The other 8 represent 75 percent of global consumption and are projected to report negative GDP this year, said Gross. "That does not correlate with stronger consumption of copper, stronger copper fundamentals or a higher price," said John Gross, publisher of the Copper Journal. Miners helped by not increasing mine production when copper prices rose in 2008 and again in March and April of 2009. Longer term, Buxton said some structural issues that drove the bull market, like chronic shortages of concentrates, lower ore grades at some leading mines, metal intensive growth in China and other emerging markets, will come back into focus. "The fact is that there's a metal intensive growth coming from the emerging economies that will emerge in 2010, and that will spark the upside of the W," said Buxton.