Copper prices likely to rule weak next year Stimulus initiatives unlikely to boost demand before mid-2009

Print this page Posted on : 12-24-2008 by recycleinme.com

"This market continues to be oversold,'' and any signs of demand builds in the US or China could cause the metal to rally.

Dow Jones

New York, Dec. 23Now that the speculative investment demand that helped take copper prices to record highs this year is withering, the metal next year is set to trade on its bearish supply-demand fundamentals - which have already dragged it to four-year lows and probably won't allow the metal above $3 a pound.

Growing surplus

With a growing surplus forecast for 2009, copper's prices will probably fall further {ndash} although not as sharply as its more than 70 per cent dive from May's record $4.27 to December's $1.26 low.

The metal won't likely stabilise until at least the second half of 2009 when production cutbacks and economic stimulus initiatives begin to bite. Even after that, price rises will probably be muted.

''The global economic climate continues to deteriorate, and with it the outlook for base metals demand in 2009 has turned more gloomy," Standard Bank analyst Mr Leon Westgate said in a research report. That leaves room for further downward drift in copper prices.

Downside limited

Mr Westgate sees copper's downside limited because industrial metals have already priced in most of the worst case economic scenario and governments around the world continue to offer economic support by stockpiling metals, easing monetary policy, and coming up with bailouts and stimulus packages.

Copper found a recent bounce after President-elect Mr Barack Obama announced plans to bolster public works spending in the US and Congress and US automakers appeared close to a deal on an aid package. The US has unveiled $700 billion to spur its economy, and China recently announced more than $500 billion in economic stimulus. Central banks have been slashing interest rates.

But the very fact that these extraordinary measures are necessary shows what straits the world economy is in. These initiatives won't likely stimulate economic growth enough to boost copper demand and prices until at least the second half of next year.

The same is true for the other leg of any potential copper price recovery {ndash} production cutbacks in the face of currently declining prices.

Although miners are starting to scale back, the copper market surplus is going to increase in 2009 as questions about demand from the housing market, auto industry and China linger, said Mr Frank Lesh, broker and futures analyst with FuturePath Trading.

Trading range

With estimates of a 280,000-tonne production surplus next year, MF Global analyst Mr Edward Meir sees copper's 2009 trading range between $1.14 and $1.70 a pound.

Mr Bart Melek, global commodity strategist with BMO Capital Markets, expects copper to average $1.50 during the first quarter of next year.

Demand seen flat

Meanwhile, demand will be flat overall next year, after declines in the first part of the year improve in the second part, he said.

Copper prices will stay below $2.25 over the next three to six months, with potential for declines to $1 or below, said Mr Michael Gross, broker and futures analyst with OptionSellers.com

However, ''this market continues to be oversold,'' and any signs of demand builds in the US or China {ndash} may be beginning in the second quarter and picking up in the third quarter of 2009 {ndash} could cause the metal to rally, Mr Gross said.

''At least for the first half of the year our outlook remains bearish,'' Mr Gross said.

Source : Business Line