Supply Deficit In Copper Persists, Says Un Group

Mine and refined copper production were 7.9 per cent and 6.3 per cent higher in the half-year than in the same months of 1995, says the ICSG. Total production of refined copper from primary and secondary (scrap) sources was 6.066m tonnes. Consumption, meanwhile, grew by only 1.2 per cent compared with last year, to 6.158 million tonnes. This left refined stocks at about 1.06 million tonnes at the end of June, down by nearly 140,000 tonnes since the end of January.

The group points out that, within total production, copper produced by the solvent-extraction, electrowinning method -which does away with the need for smelting -jumped by 43 per cent compared with the first six months of 1995.

 

GNI Research, part of the Gerrard & National commodities group, says in its latest Commodity Perspective publication that the introduction of sx-ew has shifted the cost curve sharply to the right so therefore the average price of copper production has come down''.

Nevertheless, the marginal cost of producingx copper remains at 70 to 75 US cents a pound ($1,550 to $1,650 a tonne). GNI says that, typically, base metal production will continue at prices below marginal cost for about six months before closures occur. But if high cost producers have hedged forward, it is possible that closures could take one or two years.

This would actually be better for the health of the copper market,'' argues Lawrence Eagles, GNI's analyst. The longer copper persists at prices that provide mana from heaven for the lowest cost producers, the greater the explosion in output will be. It is sobering to realise there are copper producers who would still be making a 25 per cent profit at $900 a tonne (41 cents a pound).

Some can currently pay back the investment of a new development in just two years at current prices.'' Eagles suggests that, because the copper market has been in deficit for most of the past ten years and prices have been buoyant, copper supply is on the verge of an explosive surge''. He predicts a supply surplus of about 189,000 tonnes this year, 150,000 tonnes of it in the second half. In 1997,the surplus would be 450,000 tonnes.

He suggests that the average price of copper for delivery in three months on the London Metal Exchange will fall to $2,155 a tonne (98 cents a pound) before sliding to $1,700 to $1,750 in 1997 (77 cents to 79 1/2 cents). He adds: $1,600 should provide a reasonable target for trading low next year. However, it will not be a floor forever''.