Shilling: Copper’s Fall Will Continue As Producers Won’t Cut Output

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A. Gary Shilling writes that copper’s fall will continue because producers have a great incentive to increase output despite low market prices.

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In his Bloomberg View piece, Investment and Money Manager Shilling blames the commodity boom of the early 2000s that led to massive building and expansion in China.

“It’s not economical to suspend some of these projects due to high sunk costs and shutdown expenses,” Shilling writes. “Some producers, moreover, may not be free to slash output as prices swoon, especially if they’re government-controlled and need foreign exchange to service sovereign debts.”

Copper is produced mainly in the developing countries of Chile, Peru, Congo, Zambia and Russia. China is a net exporter of aluminum but an importer of copper. The International Copper Study Group, made up of copper-producing and consuming countries, says demand will rise just 1.1% this year while output jumps 4.3%.

The cash price of Japanese copper fell 1.8% on Thursday, March 5 to JPY 721,000 ($6,026) per metric ton, making it the day’s biggest mover. The price of US copper producer grade 110 showed little movement on Thursday, hovering around $3.39 per pound. The price of US copper producer grade 102 held steady around $3.58 per pound. The price of US copper producer grade 122 saw little movement yesterday, closing out around $3.39 per pound.

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Chinese copper closed mixed yesterday. The price of Chinese copper wire fell 0.2% to CNY 42,530 ($6,780) per metric ton. After a couple of days of decreasing prices, the price of Chinese copper bar held steady at CNY 43,400 ($6,918). Following two days of downward movement, the Chinese copper cash price held steady at CNY 43,600 ($6,950) per metric ton. The price of Chinese bright copper scrap saw little movement at CNY 33,400 ($5,324) per metric ton.

After a 0.5% increase, the copper 3-month price finished the day on the LME at $5,865 per metric ton. Also on the LME, the primary copper cash price gained 0.5% to finish at $5,881 per metric ton.

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