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Global copper weak on declining demand

G. Chandrashekhar

MUMBAI, Aug. 21

WEAKENING demand in major markets and limited impact of production cuts have driven global copper prices down in recent months. In early June, copper prices dropped below $1,600 a tonne (72.6 cents per pound) for the first time since July 1999. Recovery prospects do not seem to be promising, on current reckoning.

Against the total supply of 12.48 million tonnes (m.t) in 2001 (increase of 3.9 per cent from last year), consumption is projected at 12.23 m.t., according to the latest Commodities Forecaster of Macquarie Research (Metals and Mining), which said in the near-term, price outlook is sideways to downwards.

The report pointed out that demand for copper in the US and Japan had been falling sharply, while Europe had been the bright spot so far. The western world demand growth was projected to fall more sharply than previously anticipated. Copper had previousl y appeared to be immune to economic slowdown with demand growth outperforming expectations at the start of the year but latest indicators show the downturn has now begun to impact copper also, the analysis revealed.

On the supply side, there has been little relief from production cuts/disruption, with most of the announced cuts in output having a far greater impact on mine production than on refined output.

China, the report said, had proved to be a more bullish influence on copper than had been expected so far in 2001. Against all odds, net imports of refined copper were up by just over 20 per cent (30,000 tonnes) in the first four months of the year. Chin a is likely to remain a wild-card for copper over the next 2-3 years.

A repeat of last year's massive imports (when net imports jumped by nearly 2.5 lakh tonnes to 5.5 lakh tonnes) would see the copper market significantly tighter. However, with Chinese production still growing extremely strongly, any slowdown in demand gr owth could also see China surprising the market by importing less copper, the report added.

The net effect of the weaker demand in the US, Japan and much of Asia, still strong demand in Europe, and high net imports into China has been to swing the market in marginal surplus. For the first half of 2002, Macquarie has revised the demand expectati ons downwards as a result of which consumption and supply look almost exactly balanced for the year.