The Hindu Business Line : Copper prices seen dormant in first half

Falling prices
The metal has showed signs of weakening mainly because demand from China has begun to show signs of slowing down.
Analysts feel that copper does not have much of a chance to rise this year.

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Chennai Jan. 21 Last year, copper prices had run to a record $8,800 a tonne in the global market. Since then, it has gone only in one direction - down. The prices have fallen by over 30 per cent leaving investors wondering about its prospects. How will 2007 be for the metal, one of the most important ones for the industry and housing sector?

There seems to be no two opinions on how the metal will behave this year or at least in the first half. The metal does not have much of a chance to rise this year, going by analysts' view.

Under Pressure

Abare, the Australian economic research agency, says copper prices are forecast to fall by over 8 per cent and it could average $6,250 a tonne. Well, that could mean there could be some upside from the current $5,750 levels. Commtrendz Risk Management Services Pvt Ltd, an independent research firm, sees copper remaining under pressure for the most part this year.

According to Mr Avinash Raheja, Senior Vice-President of the firm, copper could see a sharp bounce but after that, it should resume its fall. Abare says despite continued likelihood of disruption to supply due to labour disputes and shortage of concentrates, global refined copper production is forecast to increase this year by about 5 per cent. "At the same time, copper consumption is forecast to increase by over 4 per cent, largely reflecting continued strong growth in copper demand in China," it says.

But since supply is projected to increase faster than demand, inventories are likely to increase to around 2-3 weeks of consumption. This is the reason why analysts see prices being dormant for copper.

China Demand

Mr Raheja says China is already showing some signs of fatigue and the authorities there are trying their best to bring about a soft-landing and cool down the economy since 2005. While their measures of curbing credit and hiking rates have not worked well, it is now showing signs of lag effects working their way through. This could lead to market and structural imbalances that will bring about a correction in growth.

Abare projects a 10 per cent increase on China's demand this year to four million tonnes. At the same time, it sees copper consumption in the US easing due to fall in growth of the housing sector.

However, things are now down to the last quartile. Abare sees refined production of copper to remain strong at 18.28 million tonnes against 17.44 million tonnes last year but the carryover stocks are expected to rise to 7,98,000 tonnes from 6,39,000 tonnes last year. Mr Raheja says constantly rising prices extended over time can surely put a spoke in the wheels of global growth.

Threat to Projects

Rising wages and commodity prices are a threat to capital projects and investments and, therefore, a threat to demand for copper. And if there should be any further proof to the outlook, then the latest CFTC report says long positions in copper are down by 987 in the case of non-commercial interests and 919 in the case of those who have commercial interests.