BY ROBERT P. MADER of CONTRACTOR’s staff
COPPER PRICES should begin to decline in 2006, but don’t get too excited. The days of 73 cents per lb. copper are long gone and a price of $1.20 per lb. by the end of 2006 could be a major victory. At press time, the metal was trading about $1.48 per lb.
In mid-February, Reuters news service reported from the London Metals Exchange that a surplus of copper is expected beginning next year.
The reason is twofold: Anybody who is buying copper is already in the market and miners are going to increase capacity.
“The dollar has been weak and fundamentals tight for some time, and it is difficult to believe that more buyers have yet to come in,” Gareth Roberts, trading manager at the Quality Capital Management fund, told Reuters.
At the same time, the world’s biggest miner, BHP Billiton, announced that is will increase its copper capacity. The miner owns the world’s largest open pit copper mine in Chile and said it plans to invest $1.9 billion in the mine between now and 2007.
Reuters quoted BHP Billiton Chief Commercial Officer Marius Kloppers as saying that the refined copper shortage should ease as more smelters come on line.
Two major variables in the market are how much copper the Chinese will buy and the strength of the dollar. The Chinese are making significant investments in Chilean copper mines, said Mark Alan, vice president and general manager of the Starline Division of Chicago Faucet, a Geberit company. If the currently weak dollar strengthens, the prices of copper and all other commodities will go down.
“Most important for us is the comment that we wouldn’t see much change until 2006,” Alan said. “I would agree with that. If the gentleman [Roberts] was saying we know who all the players are and the market is pretty much fixed and now it’s strictly a supply-and-demand issue, I would agree.”
Alan, who has followed the metals market throughout his career, said he’s aware of additional refining capacity coming online and a significant investment in copper mining. Much of the investment, however, is overseas, especially in Chile, because U.S. copper-bearing land is surrounded by protected federal land.
“I don’t expect it to change much during the course of this year,” Alan said. “It’s going to fluctuate quite a bit every time the dollar moves. And the investors are moving it slightly so you’ll see days when there’s a lot of upside buying and then lot of selling a couple days later.”
Two years ago, copper was in the mid-70-cent range per lb. and it’s now double that, Alan said, and he doesn’t expect to see those days again. The growth in the Chinese economy will keep world demand for copper on the rise.
“If it dropped down to the $1.20 range, that would be a significant move,” he said.
Alan noted that as of the beginning of March, the commodities futures price was $1.47 per lb. and the cash price was $1.48 per lb.
Jerry Pfister, vice president/manufacturing for Lochinvar Corp., noted that the prices predicted in both the Reuters story and in Alan’s prognostications are reflected in futures prices published by the COMEX Division of the New York Mercantile Exchange.
“Looking long in September of ‘06, the price on the futures market is $1.27 and current closing price today is $1.47,” Pfister said. “It’s showing throughout this year that there is not much of an impact. There’s an opening price of $1.47 through June, and then it drops off to $1.44 and $1.43 and $1.36 by December.”
The price is predicted to slowly decline throughout 2006.
Looking at the historical information, copper was at 73 cents per lb. at the beginning of 2003, Pfister said. The price jumped to $1.08 in January 2004 and $1.37 in March 2004.
But to all this, Pfister added an important caveat: “Futures speculation and reality are not connected.”