Copper, like many of the base metals, sure has been in for a rough ride. Copper, like gold, is often analyzed as a key economic indicator. And the news has not been too good. For example, US copper imports dropped by 37% from August to September, according to the International Trade Commission. Weakness in demand now cutting across multiple sectors including automotive, construction and general manufacturing, has choked imports. Investment banks have revised copper price forecasts downwards, including Goldman Sachs which has revised its earlier forecast of $7960/ton to $3500 for three month deliveries. $3500 ton represents the average cost of production.
This chart above tells the story. The 5-year LME chart reflects the price run up of the last couple of years, and the subsequent drop, though we are not yet at the 2003 price.
When you look at the price compared to inventory levels, the charts show a different picture. In this 5-year LME chart, inventories were much higher back in 2003 and may appear to be in the low range of the last few years .
Demand has not only taken a hammering in the west but has also come down significantly in Asia. The first half of the year is normally a period of re-stocking by consumers although 2009 will be different as various factors play against each other. Chinese companies however, are still busy scouring the world to ensure long term supply of key commodities, despite the current picture. Investors will see any bit of good news as a reason for copper consumption to pick up and therefore will buy. In reality, copper consumption will not pick up before the end of 2009. But that won’t stop copper from continuing on its rough ride for most of 2009. For those looking to buy copper, anything below $4000/ton is probably a good price.