Caterpillar Sees Copper Price as the Key to a Return to Growth

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Caterpillar’s, Chris Curfman, President of its global mining division, painted a surprisingly confident picture of the future for both the wider mining industry and for the Illinois based mining equipment manufacturer. Last week Reuters quotes him as saying the return to growth for the mining division was almost wholly dependent on the copper price. When copper sinks below $1.10/lb, more miners shut operations completely, copper at $1.40 serves as a break-even level for many producers and at $1.60/lb it seems a threshold prompting some miners to put idle equipment back to work.” Caterpillar has seen a vast number of orders delayed but comparatively few canceled as mining companies have tried to position themselves for a return to growth in 2010. Miners do not want to go to the back of the line and so have left orders on the books, and have merely delayed delivery advised Cuffman.

With copper rallying to $1.67/lb this month on the back of a strong rise in Chinese imports in January and February it could be seen as the trigger for Caterpillar’s production lines to re-start. But many observers believe this is a bear rally and prices could drop back in the second quarter. However, the sensitivity the market is showing to a rise in Chinese demand coupled with the level of production cut backs we have seen over the last six months suggests if a return to a sustained copper price over $1.60/lb is not guaranteed, it is certainly looking more probable than it was a few weeks ago.

Keep close tabs on Caterpillar’s comments and the copper price. Noone is closer to the big mining companies, as we have reported previously. Caterpillar is a bell weather company for both the mining industry and the US economy as a whole. Even if their construction division is likely to remain depressed for the rest of this year mining may be the first beneficiary of a wider global recovery.

–Stuart Burns

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