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Are copper prices about to tumble?
Propurchaser
Copper prices closed at US$2.96 per pound on April 19, and many observers say it's only a matter of time before the metal breaks through the $3 mark, on its way to $4 or higher.
They argue that growing (seemingly insatiable) demand from China and India, combined with ongoing mining and production disruptions, mean it will remain a 'sellers' market for the foreseeable future. Copper is virtually indispensable, they say, used widely in construction, auto manufacture, and other industries. They certainly seem to have a point, considering the following observations:
• Copper prices have more than tripled in the past three years;
• The average home requires 440 pounds of copper;
• The average car has 50 pounds of copper;
• Current copper inventories in London Metal Exchange warehouses represent about two days worth of global usage.
But, wait a minute. Are supply and demand really that much out of balance? Surprisingly, the answer is "no." In 2005, global copper usage actually fell 1.5 per cent while copper production rose four per cent. So where is all the hype coming from? Many observers blame speculators.
Toronto Dominion Bank warned on April 20 that, "speculators have moved into the driver's seat on many commodities and that crude oil and base metals will likely plunge 20 per cent later this year."
The market has become a lottery, the analysts warn. Copper is no longer being pushed higher by traditional forces of supply and demand, but by huge hedge funds betting the price will rise, hey explain, which means any sign of 'softness' could spark a selling spree and prices will plunge.
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