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Message: Copper looking OK for 2012
Apologies if a repeat: 2011 Copper Market Trends December 29, 2011 @ 4:00 am In Copper Articles,Feature Articles By Shihoko Goto - Exclusive to Copper Investing News
[1] The past 12 months have been anything but dull in the copper market, and the year to come is expected to be just as tumultuous for the red metal, with an array of economic and geopolitical wild cards looming on the horizon. For now, though, the bulls appear to be overshadowing the bears, despite the considerable downside risks in the global economy. Copper prices have fallen by nearly 25 percent since the beginning of this year, peaking at just over $10,000 a ton and falling below $7,000 amid worries about the Eurozone's debt crisis spilling over across the world market, and weakening demand in China which continues to lead demand for the industrial metal. European debt crisis hurts global demand Concerns over Europe's ability to deal with the debt crisis bogging down the Eurozone reached a heightened frenzy by late September amid fears of default in Greece in particular. A near panic about Europe's future has rattled industrial confidence across the continent and beyond. The
(ICSG) reported
that demand for the red metal fell steadily as the year progressed, with third quarter copper usage in the European Union falling by nearly 9 percent from a year ago and almost 5 percent in the United States, while the record-breaking earthquake in March too contributed to Japan's use of copper to fall 12 percent from a year ago. Yet, global demand for copper outside of those three major regions actually increased by 5 percent from a year ago, with usage in Russia surging 72 percent and by 7 percent in India, according to the ICSG.
Chinese appetite for copper wanes
Asia continues to lead world demand for the red metal, accounting for about 60
percent of global copper consumption, with China making up over half of the regional
market's share. Beijing reported third quarter GDP growing at its slowest pace in
nearly two years on the one hand while rising inflationary pressure is increasing
expectations that the central bank will be forced to raise interest rates soon, industrial
growth is seen to falter. Still, as China has been drawing on its own refined copper
inventories in recent months which have reduced excess stocks, expectations of a
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restocking campaign remain. Coupled with continued government commitment for
construction and infrastructure development which will require heavy use of copper
cable and other materials, China is expected to remain the world's top copper
consumer.
Strikes disrupt supply
A slowdown in demand, however, may be offset by a further tightening in on the
supply side as has been the case throughout 2011. A slew of strikes across the globe
have added to the anxieties of copper producer, not least
Freeport-McMoRan
[3]
(NYSE:FCX [4]
), which dealt with a three-month strike at its Grasberg mine in
Indonesia. Freeport's mine strikes have cost the company about 2 million pounds a day in production. While the company was able to reach a deal with union workers by increasing their wages, mine workers elsewhere across the globe have gone on strike to rally for better pay and working conditions, including miners at Chile's Collahuasi mine owned jointly by
)
and
Macquarie Group
[11]
, meanwhile, cautioned in a research paper this month [12]
that “global copper
mine output has continually disappointed forecasts, and more importantly, market needs over a number of years now, despite the strong financial incentive not only from high copper prices but also by-product prices and a fall in processing fees paid by miners to smelters.”
Copper thieves on the loose
While copper prices have fallen considerably over the year, the market for scrap red
metal remains robust. The US Department of Energy stated that since 2004 when
copper prices began to surge, there has also been a rise in copper theft. What's more,
even as the red metal's price has cooled down, London has seen an 85 percent
increase in copper thefts compared to year ago, and the House of Commons passed a
bill in November to take greater punitive action against the thieves and to regulate the
scrap metal trade. The bill would update the
1964 Scrap Metal Dealers Act [13]
by
requiring scrap metal dealers to be licensed and also giving greater power to law enforcers to close down scrap yards violating the law. The bill is, however, facing opposition from the British scrap metals industry which argues that banning companies from paying for scrap in cash would encourage the black market to flourish.
Outlook for 2012
Goldman Sachs
[14]
lowered its 2012 copper price forecast to $9,200 a metric ton from
$10,790, while
too cut back its projection to $8,375
a metric ton from $11,250. Still, many analysts expect the global economy to skirt a recession next year anticipate copper to average $4.06 a pound in 2012. Garrett Nelson, an analyst at
, however, expects the price to
average $3.25 a pound next year. “Most analysts are too optimistic,” Nelson said, arguing that the market is actually in balance or even in surplus. Chile's central bank too is less optimistic than most on Wall Street as it cut back its
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average copper price projection to $3.50 a pound from a previous view of $3.70 a
pound. For this year, the
central bank [17]
expects copper price to average $4.01 a
pound, down from its previous estimate of $4.15.
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