Copper may not rise much as speculative investment dries up Uses in manufacturing, construction plunge 70%

Print this page Posted on : 12-27-2008 by recycleinme.com

Speculative investment in copper has dried up, a change that is having a bigger effect on the price than slumping demand.

Bloomberg Dec. 26 Copper may not rebound past $2 a pound after an international credit crisis hammered speculators, according to Mr Santiago Gonzalez, Chiles mining minister.

Such price levels are probably over, Mr Gonzalez told told reporters in Santiago. Copper may rise to between $1.60 a pound and $1.70 a pound after the credit crunch eases, he said.

Still developing

The financial crisis is still developing, said Mr Gonzalez, who is also Chairman of state-owned Codelco, the worlds largest copper producer as measured by 2007 output.

Copper, considered an economic barometer because of its uses in manufacturing and construction, has plunged 70 per cent from a record in May.

Shift to short positions

The metal rose as speculators bet prices would climb higher. By August 1, copper had dropped 16 per cent from its peak and speculators had shifted to a net short position, betting the metal would decline further.

Since then, the mounting credit crisis has slowed global economic growth, projected at 0.9 per cent next year by the World Bank on December 9, down from a 2.5 per cent pace in 2008. Single-family home sales in the US, the second-largest user of copper after China, tumbled by the most in two decades last month. Industrial growth in China is at the slowest pace since 1999.

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Speculators Role

Mr Gonzalez said speculative investment in copper has dried up, a change that is having a bigger effect on the price than slumping demand. Global usage of the metal has not fallen significantly, he said.

Copper has tumbled 58 per cent this year as hedge funds and other large speculators went from a net-long interest of as much as 10,000 copper futures contracts in mid-March to net-short holdings of as much as 18,799 New York-traded contracts last week, US Commodity Futures Trading Commission data show.

Spending by China government will spur economic expansion of more than five per cent next year, he said. Growth below that level may push coppers price to less than $1 a pound, he said.

Chile produces about 35 per cent of the worlds mined copper, making it the largest supplier of the metal.

Codelco Sticks to Plan

Codelco, the Santiago-based copper producer, will maintain its investment plans as it looks to the long term, Mr Gonzalez said. Freeport-McMoRan Copper & Gold Inc, the second-biggest copper supplier, BHP Billiton Ltd, the worlds largest mining company, and Brazils Cia Vale do Rio Doce all have cut output targets or delayed investments as metals prices slumped.

In Chile, the government is helping small and mid-sized mining companies as unemployment in the industry mounts, Mr Gonzalez said. The big mining companies have not made large job cuts in the country, he said.

Source : Business Line