The Hindu Business Line : Little prospect of major recovery in copper prices

Copper prices have been under pressure for last several months. After reaching multi-year highs towards mid-2006, the market has clearly moved down with little prospect of a major recovery. Copper could be moving into a situation of surplus and demand is surely slowing.

Fine balance

The copper market is finely balanced; but slowing demand is a cause for concern. The International Copper Study Group (ICSG) balance estimates fluctuate between surplus and deficit. There is a deficit of 34,000 tonnes for September, while for the first nine months of 2006, it is surplus by just 81,000 tonnes.

Mine production

Refined copper usage growth continues to slow, with demand in the world ex-China up by just 0.7 per cent year-on-year in September, the slowest growth rate since December 2005, according to analysts.

Mine production is not growing. The global copper mine production declined marginally year-on-year during January-September 2006. Availability of concentrates remains extremely tight. Mine production growth has been below earlier expectation this year.

Refinery capacity utilisation was 83.2 per cent in the first nine months of the year, up from 80.6 per cent same period last year, according to ICSG.

Although this year's capacity utilisation appears to be at the highest level since 2002, it is still well below the maximum or even normal levels, as a result of continuing tight availability of concentrates, analysts asserted.

Turning point

While the refined copper market remains extremely close to balance, analysts see copper now at a turning point. The year 2007 could one of surplus with more supplies met by slower global demand growth. It should surprise none if there is a major downward move in copper prices.