Lme Copper Not Supported By Basics

Copper prices on the London Metal Exchange (LME), which have reached a nine-month high, are not supported by fundamentals and cannot last, a private Chinese base metals consultancy said on Thursday.

We believe that world-wide copper fundamentals do not support the copper price rises, that any rises in the copper price will be short-lived and that 1997 will see a bearish market for copper, the Shanghai Could Consultant Co said in a report.

Analyst Rudolf Wolff, in an evening metal report, said that with little producer selling on Wednesday, it seemed any further buying could easily push the copper price towards its $2,400-$2,450 technical target.

LME copper reached a fresh nine-month high of $2,415 a tonne at 1900 GMT on Wednesday, after a kerb level of $2,392 a tonne, up $42 on the day. But the report said although the charts remained bullish, the fundamentals were not.

Shanghai Could Consultant Cos managing director Yen Zheng agreed, saying his company was more interested in market fundamentals than technical analysis.

In its internal report, Shanghai Could said an increase in world-wide copper output in 1996 should continue into 1997, quickly turning the market from shortage to oversupply. New technology was constantly lowering production costs, the report said, with the 1996 average world-wide production cost of 67.8 US cents a lb likely to fall to 60.7 cents a lb in 1997.

If the copper price hit 110 cents a lb, profit margins would stretch to 81.2 percent and hedging opportunities would widen, the report said.

The level of LME copper stocks affected the price more than other stocks, such as those held by producers and end-users, the report said.

It cited the effect that the irrationally low LME stock level of 90,000 tonnes at the end of 1996 had in pushing up prices.

Copper prices had a roller-coaster ride in 1996. They plummeted to a 2-1/2-year low of $1,745 a tonne in June, when Japans Sumitomo Corp revealed massive trading losses, from a high for the year just a month earlier of $2,715 a tonne.

But tight global supply and low stocks saw LME copper prices claw their way back, to start 1997 at $2,167 a tonne.

With prices now around $2,400 a tonne, the Shanghai Could report points to the current large stocks of copper held in LME warehouses and concludes that stocks will continue to rise, pushing values down.

Recently, LME copper stocks have risen to around 222,000 tonnes, and while they will move around this level, the trend for stock increases will not change and will very quickly rise to 270,000 tonnes, the report said.

This is one reason the LME copper price will fall. LME warehouses now hold 222,050 tonnes of copper, after a slight fall earlier this week of 2,450 tonnes.

Chinas influence on the world market was also significant because the country was a major copper user, the report said.

In 1996, China produced 910,000 tonnes of refined copper, importing 300,000 tonnes for total national demand of 940,000 tonnes, the Shanghai Could report said

Chinas carryover stocks from 1996 into 1997 were around 250,000 tonnes, it said, going some way to explain the difference between demand and domestic production and import figures. A recent report in the official Market Daily newspaper said Chinas 1996 exports of uncast and raw copper were up 2.5 per cent on 1995, to 133,708 tonnes.

The Shanghai Could report said, while Chinas copper production in 1997 should be about the same as last year, demand would rise to 1.1 million tonnes, maintaining the balance between demand and available stocks.