Like many other metallic commodities, copper has spent recent months in an oversupply situation, keeping its price down. But the fundamentals are beginning to look better, according to presenters at the Institute of Scrap Recycling Industries Inc. (ISRI) Commodity Roundtables, taking place this week in Chicago.
One factor that might help copper’s price more than anything is a resolution to the standoff between the U.S. and Iraq, according to industry analyst David Hightower of the Hightower Report, Chicago.
“The speculative crowd is taking a short position that may be reaching a zenith,” says Hightower. “When bullets fly, that’s when you see major tops and bottoms in the market. At that point, the worst will be behind us,” he says of the first few days of a potential altercation between the U.S. and Iraq.
Investor sentiment regarding the prospect of war may be the biggest current drag on the market, as other fundamentals are lining up for a price recovery, says Hightower.
“Since the beginning of August we started cleaning up our fundamentals and it’s been much tougher to take the price lower. LME stocks and [inventories in] Shanghai are down—we’re making inroads in working through stocks,” he remarked.
On the demand side, Hightower called Chinese demand “our backstop,” and noted that a key Chinese policy maker recently declared his country’s critical need for copper and the government’s determination to have “all the copper it needs.” In the U.S., new home sales and the auto sector are bright spots “that have prevented the ultimate disaster that could have happened,” for copper pricing, added Hightower.
“Fear has a firm grip on the market. Despite U.S. successes in Afghanistan and in Kuwait in 1991,” said Hightower. After the terror attacks, the anthrax scare and corporate scandals, “We’re waiting to clean the palette of the last of these negatives. I believe [the stand-off with Iraq] will come to a confluence in next the next two to three weeks. I think it’s going to happen and be over quickly and we’ll see a temporary pounding of some prices. We may have to suffer a one-day 50-cent trough, but it’s just as conceivable we’ll come ripping back and forces will result in a leveraging (up) of the price structure,” he declared.
Also presenting at the Roundtables, Joseph Robertson of Sudamin Corp., New York, noted that copper inventories are still high, but down slightly from their peak in May of this year.
Despite the inventories of refined copper, Robertson noted that recyclers throughout the world say the copper scrap supply is tight. The Chinese remain good buyers of both concentrates and scrap, he added. “Shanghai stocks are drawing down from an April high, heading toward zero in April 2003. Government spending there and economic growth have continued strong in 2002. They are now the second largest consumer of copper after the U.S.”
Robertson said demand in the U.S. “has been the Achilles heal” for copper. “The bust in telecom and IT spending is having a disastrous effect on demand.” He also predicted that a war with Iraq would delay the recovery of copper prices—“unless it is a short war.”
Robertson summarized by saying, “There is still too much copper around,” but “if demand increases, it is only a matter of time before there is tightness and an increase in pricing.”
Frank Bilban of wire maker Encore Wire Ltd., McKinney, Texas, noted that his company has remained a strong producer of wire and consumer of copper scrap throughout 2001 and 2002.
The markets indicate, though, that copper supplies “are now up to almost all-time highs, and that recent pricing, in constant dollars, is near a 100-year low. If the Chileans will curtail production, perhaps we’ll see some firmness in pricing.”