Copper

From IntFX

Commodities Portal

1 Overview
2 Copper Prices
3 Applications
4 Supply/Demand
5 Supply
6 Demand
7 Pricing Structure
8 Price forecast
9 China Consumption
10 Major Mines
11 ASX Synthetic Index
12 External References

[edit] Overview

Wheat is the dominant grain of world commerce. It is easily transported and stored and it is used to produce a large variety of foods that include many kinds and types of breads, cakes, noodles, crackers, breakfast foods, biscuits, cookies, and confectionary items.Wheat is the most important human food grain and ranks second in total production as a cereal crop behind maize; the third being rice. Wheat grain is a staple food used to make flour for leavened, flat and steamed breads; cookies, cakes, pasta, noodles and couscous; and for fermentation to make beer, alcohol, vodka or biofuel.

Wheat is the staple food of millions of people. It is also an important part of the daily diet of many millions more. Only rice challenges wheat for the title of most important food grain in the world.Approximately two-thirds of the wheat produced in the world is used for human food and about one-sixth is used for livestock feed. Industrial uses, seed requirements, and post-harvest losses account for the remaining withdrawals from the world wheat granaries.

[edit] Copper Prices

Contract Specifications:Copper, High Grade

Trading Unit: 25,000 pounds
Tick Size: 0.05 ¢/lb. = $12.50
Initial Margin: $8,100 Maint Margin: $6,000
Contract Months: All 12 months.
First Notice Day: Last business day of month preceding contract month.
Last Trading Day: Third last business day of the month.
Trading Hours: Open outcry trading is conducted from 8:10 A.M. until 1:00 P.M.
Electronic: 3:15 P.M. on Mondays through Thursdays and concluding at 8:00 A.M. the following day.
Sundays, the session begins at 7:00 P.M. All times are New York time.
Daily Limit: $0.20 (20¢) per pound

http://ichart.finance.yahoo.com/b?s=%5EYHOh711

[edit] Applications

Copper is the best non-precious metal conductor of electricity as it encounters much less resistance compared with other commonly used metals. It sets the standard to which other conductors are compared. Copper is also used in power cables, either insulated or uninsulated, for high, medium and low voltage applications. In addition, copper's exceptional strength, ductility and resistance to creeping and corrosion makes it the preferred and safest conductor for commercial and residential building wiring. Copper is an essential component of energy efficient generators, motors, transformers and renewable energy production systems.

Along with it copper is also used for Computers (building the IC's, chips, and the PCB's), Electricity (copper wiring for TV, radio, lighting, mobile phones, transformers and motors), Currency, Health etc...

In the US a new home requires approximately 200kg of copper, and it is furnished with 10kg of copper via home appliances.

[edit] Supply/Demand

Deficit/Surplus
According to the preliminary ICSG data, refined copper usage continued to exceed refined copper production, resulting in a production deficit of around 50,000 metric tonnes (t) in June 2007. After making seasonal adjustments for world refined usage and production, however, the market showed a surplus of about 10,000 t. The apparent refined copper balance for the first half of 2007, including revisions to data previously presented, indicates a production deficit of about 340,000 t (a seasonally adjusted deficit of 130,000 t), due primarily to strong Chinese apparent usage. ^[1]

[edit] Supply

On the supply side, world mine production increased by almost 5% in the first half of 2007 compared with that in the same period of 2006, when production was reduced by technical problems and strikes: concentrate production was up by 4% and SX-EW production was up by 10%. Year-on-year mine production for the first 6 months of 2007 was up by 15% in Asia, 7% in Latin America and 1% in Africa, but decreased by 2% in North America, 2% in Europe and 4% in Oceania.

Global mine capacity utilization increased to an average of 88% from an average of 87% in the same period of 2006. Total world refined production increased by 4.3% in the first 6 months of 2007 compared with refined production in the same period in 2006: primary production was up by 3.9% (with the biggest share of the growth attributed to SX-EW production) and secondary production (from scrap) was up by 6.6%. With the exception of the United States , where production fell by 2.3%, most major producing countries increased their production: Chile (10%), China (7%), Japan (4%), India (21%) and Russia (8%). Refined capacity utilization rates decreased slightly to 83.3%.

Credit Suisse (Feb 08) believes supply may increase 1.9 percent in 2008 versus 2.3 percent forecast and 3.3 percent versus 3.9 percent in 2009 due to power and water shortages. They estimate around 700,000 tonnes of supply could slip between 2008 and 2012. ^[2]

[edit] Demand

Credit Suisse (Feb 08) predicts worst case demand growth of of 0.9 percent for 2008 would lead to a fall in copper price to $2.60 a pound, while growth of 1.6 percent could lead to $3.00 a pound, and 2.9 percent growth may lead to $4.00. Should the US economy rebound in 2H08, demand could grow as much as 6 percent in 2009, leading to a copper price between $4.50 and $6.00 a pound. ^[3]

[edit] Pricing Structure

Copper has a high value, but it has a much higher demand, about 16-18 million tonnes per year. This is about 10-12 times the demand of nickel. Relatively speaking, nickel has about 15x the abundance when contrasted to the relative size of world demand. Nickel completely lacks scarcity yet the price spiked to 8x that 10-year average price from about 93 to 03.

Copper price has spiked, but not as much as nickel in relative terms.

Clearly there is a price dip from 1998 to 2003. It is a time when companies were choosing to sell off valuable holding because of carrying costs and many new companies have made a fortune off what were previously cast-offs, some strictly on speculation, but quite a few by building mines. Copper price spiked to about 6x the weakest price in its history. Copper had a much stronger downward price trend that the other metals. Copper prices are strong and susceptible to downward price corrects. There are many strong “bears” about the copper market and there will be a downward price correction at some point, there always is, but the relative abundance to nickel and uranium when the size of the world market is considered makes one think that nickel and uranium are susceptible to stronger price corrections, but the uranium price corrections will lag due to the differences in building mines.

What has bigger implications for the price of copper is how many deposits like the recently discovered Noront drill results. Drill results on a press release today identify 68 meters averaging 5.9% nickel, 3.1% copper, 2.87 g/t platinum, 9.78 g/t palladium, 0.61 g/t gold and 8.5 g/t silver. In prior posts I talk about declining grade and how it is increasing costs so prices have a much higher cost support. I do not know how big this deposit will be, but if it were big, it would be profitable at very, very low copper prices. It does make one wonder if the declining grade being mined that seems apparent in report after report that I read is because mining efforts have focused on what resources that were known and real new exploration that would find high quality grades has been limited. This discovery should make investors in low quality grades very uncomfortable. ^[4]

[edit] Price forecast

Macquarie Copper prices will average $3.50/lb, compared with $3.315 forecast for this year, because "the raw material end of the copper market remains extremely tight," Macquarie Bank, "The next two years are likely to be a tough time for smelters, which will struggle to find sufficient feed to fill their operations." Copper for immediate delivery on the London Metal Exchange has risen 20% this year as disruptions at mines and smelters reduced supply. Producers including Rio Tinto Group, the world's third-largest mining company, have reported lower copper output this year because of ore containing less metal and adverse weather. Production of copper will outpace consumption by 82,000 tons in 2008, following a surplus of 113,000 tons this year, the analysts forecast.^[5]

UBS Unexpected supply threats to copper and robust demand has forced investment bank UBS to lift its price forecast for the next two years. The red metal is likely to fetch, on average, 324 cents per pound in 2007, 300 cents per pound in 2008 and 190 cents in 2009, said UBS (nyse: UBS - news - people ) analysts. Previously, the bank had forecast a price of 300 cents, 275 cents and 175 cents respectively.^[6]

Credit Suisse The bank’s analysts have based their conclusions on the study of 66 copper projects currently under way, or planned.The projects have the potential to collectively produce over eight-million additional tons of copper by 2015, but the report concludes that “a significant spike” in 2008 prices is still possible and that prices could exceed $3 lb as a result of undersupply.^[7]

Barclays have copper at US$8800 then to US$10000 tonne. (Source FNArena Today)

Martin Place Securities says US$ copper prices are currently testing all time highs of around US$4/lb due to the firm underlying demand from China, India and a myriad of other emerging economies in Asia, South America and the Middle East which have helped copper consumption to almost 18mt in just 13 years. The mining industry has struggled to keep up with such rapid growth so that supply side issues are now the dominant feature behind the current low levels of inventories on terminal markets and throughout the inventory chain. The weaker US$ is also helping to keep prices strong in that currency.

The supply inventory chain of new discoveries has also been low due to over a decade of reduced exploration so that new projects are forcing a general paradigm shift up in capital costs and a general shift down in grade. Throw in higher energy costs with shortages of equipment and technical personnel and the industry is left with an operating cost structure where most new entrants now will require at least US$1.50/lb to break even. The MPS view over the past decade has been that supply side issues would create a new base level of prices well above previous ‘normal’ levels and that the highs for this bull market cycle have yet to be made. MPS expects US$ copper prices to exceed US$6/lb before the end of 2009 (possibly even in 2008) and should exceed US$4/lb for the remainder of the decade and beyond in a return to a more inflationary global environment.^[8]

Merrill Lynch forecasts (as of June '08):

2008 US$3.60 (was US$3.43)
2009 US$3.79 (was US$3.45)
2010 US$3.28 (was US$3.08)
2011 US$2.50 (unchanged)
2012 US$2.10 (unchnaged)
2013 US$1.85 (unchanged)
LT US$1.55 (unchanged)

[edit] China Consumption

See Copper_Consumption_China

[edit] Major Mines

World Resources

A recent assessment of U.S. copper resources indicated 550 million tons of copper in identified 260 million tons) and undiscovered resources (290 million tons), more than double the previous estimate.8 A preliminary assessment similarly indicates that global land-based resources exceed 3 billion tons, about double the previously published estimate. Deep-sea nodules were estimated to contain 700 million tons of copper.