Copper Frenzy►One of the world’s most savvy fund managers sees steady gains for copper prices
Global Funds act as Drivers to Boost Copper Prices
Published by ShanghaiDaily.com (https://www.shanghaidaily.com/)
Created: 2006-06-01 CST, Updated: 2006-06-01 CST
https://www.shanghaidaily.com/art/2006/06/01/281562/
By Fu Chenghao
CAROLYN Wong spent 3,760 yuan (US$470) on a Haier air-conditioner at Gome Home Appliance's Zhongshan Park outlet last weekend as she heard the price would rise up to 20 percent very soon.
But she was still late as the saleswoman told her the product was 200 yuan cheaper in April.
Though it's not immediately clear whether local electrical appliance retailers will further raise the prices of air-conditioners, some major Chinese air-conditioner makers, such as Haier, Midea and Galanz, have announced plans to hike ex-factory prices.
"This month (in May) I was able to sell 20 to 30 Haier air-conditioners per day while before that it's only two to three," the Gome saleswoman told Wong.
Both may not be aware it is the rocketing price of copper globally that is boosting the prices of air-conditioners.
Copper tube is the essential component for air-conditioner manufacturing. Manufacturers have to pass the cost to consumers or retailers to maintain profit margin which is already very low.
Surging Price
On the London Metal Exchange, the contract price of copper has soared nearly 90 percent this year to well above US$8,000 a ton.
"We see an almost vertical line over the past months," said Jeremy Goldwyn, global head of industrial commodities at Sucden U.K. Ltd, which trades on the floor of LME. "Eight of the biggest 10 daily percentage rises in history happened in the last month (April)."
Prices are climbing as demand from global hedge funds and copper users outstrips supply. Hedge and pension funds are pouring money into copper and other non-ferrous commodities for higher returns than those offered by stocks and bonds.
Goldwyn believed the "way, way, way too high" price could not ease demand as global output faces hurdles expanding as miners in Chile, Indonesia, Mexico and elsewhere are having problems like labor disputes, shortage in engineering skills and equipment.
"We certainly wouldn't be surprised if copper goes to US$9,000, US$10,000 or US$12,000 in the next six, nine or 12 months, why not," he smiled. "And then to US$15,000...”
Since markets are always closely linked, the price movement on LME has definitely affected the copper contracts on the Shanghai Futures Exchange, and then, the Shanghai Stock Exchange.
Any fund whose portfolio included nonferrous metal shares in China early this year would have reaped sound returns.
"This year the Chinese stock market is dominated by nothing but the non-ferrous counters," said Ba Shusong, a researcher at Development Research Center, a government think tank under the State Council. "If you do stock market analysis today, you must study the futures market."
Who's to blame
Robust demand in China is part of the reasons that drives up copper prices, but Ba also believed that most turnover on the copper contracts are boosted by funds.
He attributed excess international liquidity caused by the United States' massive money supply and Japan's ultra-loose monetary policy that enabled global hedge funds to boost and sharply move the copper prices.
"Usually we take the fundamentals like supply and demand conditions into consideration when talking about the prices of commodities, but today the volatile market has become more like a monetary phenomenon," Ba said.
"Developed countries have already passed the period of strong consumption of non-ferrous metals but China hasn't," added Ba.
Copper demand in China, the world's largest consumer and the second largest producer of the metal, is expected to see a slower average growth rate of 7.3 percent over the next five years, from an average rate of 13.7 percent in the past five years, said Beijing Antaike Information Development Co, a government nonferrous research firm.
China consumed 3.65 million tons of refined copper last year, one-fifth of the global total. Consumption this year is expected to reach 3.9 million tons, in which 1.05 million tons are imported, according to Antaike.
Electric wires and cables accounted for 58 percent of China's copper usage in 2005 as the government has been investing heavily in grid construction since 1998.
Home appliances, such as white goods products including air-conditioners, refrigerators and washing machines, also take a big pie in China's copper consumption structure.
"Electric wire and cable along with household appliances will still be the main industries to consume copper in the future, but the growth rate will be significantly lower," said Wang Zhongkui, Antaike's vice general manager.
An air-conditioner can use some 6 kilograms of copper, while usually a car uses only 7 kilograms. So any rise in copper prices could cast an immediate shadow on air-conditioner makers.
Besides by raising prices to pass costs, manufacturers are also making products with thin pipe diameter, thin wall pipe and thin foil, as well as pondering on alternatives.
Experts think the effect would be limited.
"Some are using aluminum to replace copper but that can only be in some parts," Wang said. "And for those parts which are used in electricity conduction, we just have no choice."
And for automakers, the use of copper wire and cable may even increase because they have to use more of the metal in environment-friendly hybrid engines, said Goldwyn.
"And you should know that prices of such alternatives as aluminum and plastics have also gone up at the same time," he added.