Thisis an article, originally posted today from thedave2006 on stockhouse.Thought it's interesting to know -> especially for AM Gold's Pinaya Copper project.
Copper Stockpiles Slumping Makes Metal a Favorite for Goldman
By Chanyaporn Chanjaroen - Dec 6, 2010
Thebiggestslump in copper inventories in six years is compoundingshortages asprices head toward record highs, making the metal a toppick for GoldmanSachs Group Inc. and Morgan Stanley.
Demand willoutpace supply by367,500 metric tons next year, enough for wires,pipes and appliances inabout 1.8 million U.S. homes, according to themedian forecast of 12analysts surveyed by Bloomberg. Stockpiles maydrop to an all-time low ofless than one week’s usage, said Michael Widmer,aLondon-based metals analyst at Bank of America Merrill Lynch.Globalexchange inventories have dropped 22 percent this year, headingfor thelargest slide since 2004, data compiled by Bloomberg show.
Pricesadvanced34 percent since June 30 even as the International MonetaryFundpredicted slower world growth, U.S. unemployment stuck near itshighestlevel in more than a quarter century and China,which uses twoin every five tons of copper, curbed lending and raisedinterest rates.Now, banks from Credit Suisse Group to Barclays Capitalare predictinghigher prices, with the median in the Bloomberg survey at arecordaverage of $8,542 a ton for 2011, 15 percent more than this year.
“Copper is the most attractive” of the base metals, said Ian Henderson,who manages about $8 billion in assetsat JPMorgan Chase & Co. inLondon, including shares of Freeport-McMoRan Copper & Gold Inc. andBHP Billiton Ltd., the second andthird-biggest miners. “I don’t expectany decline in copper demand in2011 and there is little in the way ofnew mines coming on stream.”
Smart Phones
Pricesclimbed18 percent this year, reaching $8,725 a ton on the London MetalExchangetoday. That compares with a 6.5 percent advance in the MSCIWorld Indexof equities, a 6.9 percent return on Treasuries and a 16percent gainfor the Standard & Poor’s GSCI Index of 24 raw-materialfutures.Prices reached a record $8,966 a ton on Nov. 11.
Demandfor themetal, used in everything from smart phones to brake pads, willincrease4.2 percent next year, compared with a 2.6 percent gain in production,BarclaysCapital said in a report Nov. 11. Supplies fell 363,000 tonsshort ofdemand in the first eight months of this year, theLisbon-basedInternational Copper Study Group said in a report Nov. 23.
Miningcompanieshave failed to keep pace with demand because new reserves aregettingharder to find and the quality of ore is declining, meaningless metal isextracted from each ton of earth. Average grades declinedto about 1.1percent this year from 1.6 percent in 1990, according toGuildford,England- based researcher Brook Hunt, a Wood Mackenziecompany.
Biggest Mine
Productionat Escondida, the world’slargest copper mine, will drop as much as 10percent in the 12 monthsending in June because of lower grades,Melbourne-based BHP Billiton,the largest shareholder, said in astatement Aug. 25.
Freeport-McMoRan,the largest listed producer,said Oct. 21 that its copper sales fromNorth America would drop to 1.1billion pounds this year from 1.2billion pounds in 2009. Sales fromIndonesia will probably decline to1.2 billion pounds from 1.4 billion,the Phoenix-based company said.
“The major copper reserves that are being produced today come from 100 year-old mines, with few exceptions,” Freeport Chairman James R. Moffett said in a conference call on Nov. 17.
Analysts’forecastsfor shortages may not yet be reflected in futures markets.Copper fordelivery in December 2011 traded at $8,555 on Dec. 3 on theLME, 1.9percent below than the benchmark contract for delivery in threemonths.
Goldmanpredicts prices of $11,000 by then and buyingthe December 2011 contractis one of its seven recommendations incommodities, according to areport Dec. 1.
Banking Bailout
Theforecast gains could bestunted by slowing growth. Prices slumped 7.7percent in three days lastmonth on concern China’s steps to controlinflation may curb demand formetals and that Ireland would need abanking bailout.
Prices nowmay also be skewed by who owns metal.One unidentified company held 50percent to 79 percent of the LME’sdeliverable stockpiles as of Dec. 1,bourse data show. Buyers that daypaid the largest premium in two yearsfor immediate supply, relative tothe three-month contract. Deliverableinventories total 324,375 tons,the exchange said Dec. 6.
Recordprices could encourage users tosubstitute cheaper materials. Globalconsumption may be 100,000 tonsless than expected in 2011, and 250,000tons below predictions in 2012,because of replacement by plastics inplumbing and aluminum alloys inair-conditioners, Credit Suisse said Oct.20.
Hybrid Cars
Substitutionmay take out 3 percent ofdemand this year and next, according toLondon-based Rio Tinto Group. Newuses in electric and hybrid carsshould make up for some of that, Andrew Harding,chiefexecutive officer of Rio’s copper business, said Nov. 26. TheaverageNorth American car contains about 23 kilograms (51 pounds),while anelectric car uses about 75 kilograms, he said.
Thetripling ofprices since December 2008 is also spurring use of scrapmetal,alleviating shortages signaled by this year’s 22 percent dropinstockpiles monitored by exchanges in London, Shanghai and New York.Thesupply of metal from wires and electronic goods jumped 25 percent inthefirst eight months, the International Copper Study Group reportedinNovember.
The biggest threats to higher prices areChinatightening its monetary policy and a worsening European debtcrisis,said Bank of America Merrill Lynch’s Widmer, whose Marchprediction forthis year’s average price is accurate to within 2 percent.
China Economy
China may raise bank reserve requirements to counter capital inflows and a possible jump in lending at the start of 2011, Li Daokui,anadviser to the central bank, said Dec. 3. The bank pushed theone-yearlending rate to 5.56 percent in October, the first increasesince 2007.
Still,manufacturing grew at a faster pace for afourth straight month inNovember, according to the nation’s logisticsfederation. China’s economywill expand 9 percent in 2011, compared with10 percent this year,according to the median of 18 economists surveyedby Bloomberg. Thatwould still be more than three times the speed ofthe U.S., thesecond-biggest copper user, the survey shows.
ConsumptioninChina, India, Brazil and the Middle East will expand at anaverageannual rate of 7 percent per capita through 2015, according toBarclaysCapital.
“Where is all the new copper going to come from?” said Tom Patton, chief executive officer of Quaterra Resources Inc., a Vancouver-based company developing mines in North America. “New deposits take 10 to 15 years to start up.”
Higher Demand
Aurubis AG, Europe’s largest smelter, is also predicting higher demand next year.
“We presently see a very positive order flow for next year,” Bernd Drouven,chiefexecutive officer of the Hamburg- based company, said by e-mail.“Everycopper price dip is recognized by customers as an opportunity forneworders.”
Demand from Asia helped Santiago-based Codelco,thebiggest producer, increase the surcharge on sales to China next yearby35 percent, more than the 23 percent increase for Europe,industryofficials said last month. Buyers pay the fee on top of theprice of LMEcopper for immediate delivery.
Thegainis driving shares of mining companies. Freeport- McMoRan climbed36percent in New York trading this year, beating the 9.8 percent gaintheS&P 500 Index.
Demand may also be boosted if JPMorgan,BlackRock Inc. and ETF SecuritiesLtd. start exchange-traded productsbacked by the metal. Such fundscould hold as much as 250,000 tons,Aurubis said in a report Nov. 15.Similar products backed by gold accumulated 2,098 tons since they started in 2003, equal to nine years of U.S. mine output.
“The real story is metals and we’ve dubbed this the metals decade,”
Mari Kooi,chief executive officer of Wolf
AssetManagement International LLC,said at the Bloomberg Link Hedge Fund andInvestor Briefing in New Yorkon Dec. 2. “What we have is a set up ofshortages in the metals.”
Full article:
https://www.bloomberg.com/news/print/2010-12-05/copper-stockpiles-falling-most-in-six-years-makes-metal-a-goldman-favorite.html