3E

Metals Update

by John Temple

 

Does the recent decline in prices mean metals have peaked?

Some annalists believe this is the case.  In a recent interview with CNBC on June 22, Chief Commodity Analyst of Smith Barney, Alan Heap was asked his opinion on copper and zinc.

 

Q: How much weakness do you expect to see in copper and zinc?

 

A: Well, if we were to see a substantial exit by the investment funds, I think it is certainly possible that prices could fall by 20% from here.

 

On the date of Heap’s comments, the average spot price for copper on the New York Metals Exchange was $3.21 per pound.  This price represents a 21% decline from copper’s May 23^rd high of $4.08 per pound.

Capital Economics also reported on June 21^st that they believe China is unlikely to continue consumption of metals at its present pace.  Metals demand growth has been driven largely by the investment boom in China but this is unsustainable and must be expected to fall back, according to the report.

 

This implies much slower growth in demand for metals in the future, the report said.

 

The report went on to say that China’s high demand for metals such as copper and aluminum cannot be sustained because it exceeds their GDP growth by more than double.  The report estimated growth in China’s metals demand decelerating sharply, in line with slowing growth in investment: from 16% to 4% a year.

 

Not so fast…

Some “experts” suggest that copper may hold its own due to factors such as; worldwide supplies still being tight, a potential strike against one of the world’s largest copper mines in Chile, added pressure from worries of U.S. interest rate hikes, and the impending hurricane season.  The report implies that any of these factors would likely push copper higher.

 

So what does all this mean to those of us in the electrical industry?

Basically it means that a kid with a Quiji board has about as good a chance of being right when it comes to commodities.  Seriously, it appears that things may have settled down some, but the situation could change quickly.  If things stay status quo it’s likely that we have seen the last of $4.00 per pound copper for a while.  Only time will tell.

 

 Source: Metals Place

 

Last Updated ( Friday, 18 August 2006 )