Copper prices approach $4/lb as supplies tighten

By Tom Stundza -- Purchasing, 3/19/2008 11:10:00 AM

Spot copper prices remain in the $3.70-$4.00 range as global stockpiles have dropped to the lowest level in six months, spurring speculation supply will trail demand for the year. “Copper looks the tightest market from a fundamental perspective,'' writes Barclays Bank analyst Kevin Norrish in London. Inventories may reach an all-time low and prices are sure to rise to an even higher record, he suggests.

A Thompson Financial report this morning says that sentiment towards nonferrous metals has swung since the start of this year. Most analysts had warned that base metals' prices were set for sharp falls as the credit crunch lingered, which meant players would sell off their holdings to raise cash and cover losses. But, in recent weeks, commodities have become tipped as useful assets. In the wake of the crisis, raw materials hold their value on a tight supply/demand balance, unlike equity markets which can crash completely. It is that perception that helped world copper hit its highest ever price of $4/lb on March 6 at the same time as gold and oil prices tested record highs.

Copper’s price has climbed for six consecutive years as production disruptions at mines from the Asia-Pacific region to Latin America have limited supply growth while demand from China, the world's largest user of the metal, and other developing nations has expanded. A weak dollar makes industrial metals cheaper for local currency holders and boosts the appeal of commodities. So, copper was up 27% in mid-March since the start of the year.

However, some other analysts suggest that copper prices may see some downward correction because the depressed U.S. economy will reduce near-future demand for the metal and China’s imports for the high-priced red metal may start declining. “Overall, we expect volatile trading in this short Easter week,” agrees analyst William Adams at BaseMetals.com. “Also, copper prices above $4 seem to be unattractive for Chinese investors,” adds an analysis by Karvy Comtrade in Mumbai, India.