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Copper worries

by Gavin Davids on Sep 13, 2011


Falling copper prices have led to speculation that the metal is being impacted by the global downturn.
Falling copper prices have led to speculation that the metal is being impacted by the global downturn.

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The last month has seen copper prices fall from their dramatic highs in the early part of the year, when the metal was trading at record prices of $10,190 a ton on the London Metal Exchange.

Since then there has been a 12% fall due to concerns over the sovereign debt crisis in Europe and the US. Meanwhile, a slowdown in China is expected to dent demand for industrial metals, a Bloomberg News report says.

While there has always been a traditional falloff in copper prices from July to September, analysts are cautious about the drop this year with the global economy still reeling from the deepening global economic crisis.

Heightening the sense of confusion around the issue is the lack of conclusive data at the moment, due to the summer slowdown. Worryingly for investors, market evidence does point to the possibility that copper prices could move in either direction, when global consumers embark on their third quarter restocking programme.

Having hit record highs last February, prices have retreated in the wake of the financial turmoil in both Europe and America. Although this has been compounded by the seasonal demand lull, the prices for the metal have held up comparatively well.

Earlier this month, copper prices on the Shanghai Futures Exchange closed at their highest point in more than three months, with the market anticipating a post-summer consumption boom.

This rally came despite the fact that order volumes continued to be below the expected levels, with the London Stock Exchange reporting that cancelled warrants (orders to remove copper from stockpiles) monitored by the London Stock Exchange dropped for a 13th straight session and hit a fourth month low, copperinvestingnews.com reported on August 23.

Internationally however, global markets expect rest of Asia to play a dominant role in the direction copper prices take, with China especially regarded as a bellwether for the rest of the region.

“The increasing demand of copper by the growing markets such as India and China caused the copper increase in its value until about six months ago,” Aslam Zuberi, sales director – GCC, Reichle & De-Massari MEA, says.

“Now the pressure on the stock markets is due to the US dollar value. The general belief is that the growth and development will decrease in the future. This has caused copper prices to decline.”

However, certain analysts have called for calm, explaining that such behaviour is typical of the annual lull, and was not necessarily an indication of the weakness of the market.

Indeed, local markets don’t seem too adversely affected despite the challenging environment in the market.

In August of 2011, Ducab, the Dubai and Abu Dhabi government backed cable manufacturer announced record sales of $653m during the first six months of 2011 despite high copper prices affecting working capital.

“We are pleased with the results although market conditions remain very competitive and pricing still has a long way to go before margins are restored to reasonable levels,” says Andrew Shaw, managing director.

Despite the competitive market conditions, Ducab said its copper product line accounted for $272m in sales, offering clear proof that the local market appetite for copper remains strong despite the price fluctuations.



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