Commodities | May 22 2006
By Rudi Filapek-Vandyck
The spot price for copper may have experienced a near free fall over the past week, commodity analysts at Smith Barney Citigroup point out the same applies to spot prices for copper treatment and refinery charges. These charges are what copper smelters invoice to treat copper concentrate supplied by the producers.
Citigroup believes the sharp fall in the spot prices for the smelter charges prove copper’s supply-side is simply unable to match strong market demand for the industrial metal, this despite copper’s phenomenal price rise over the first months of calendar 2006. The analysts cite the widely reported reasons as an explanation for the event: long-term under investment by the copper industry, and global shortages in men and materials.
They believe there is currently also another factor in play: copper mines are withholding spot supplies because they foresee the so-called TC/RC charges will decline further.
Citigroup believes the situation is exacerbated by operational problems at several copper mines such as Zambia’s Konkola mine and Rio Tinto’s (RIO) Grasberg mine in Indonesia. In addition, there are labour strikes at another Zambian mine, Kanshanshi, and at La Caridad in Mexico. Higher production costs overall for the industry are believed to be having an impact as well.
All this is seen as further support to the broker’s view that fundamentals for the copper price remain supportive. Citigroup recently increased its spot copper forecasts to average US262c/lb for the six months to June 2006, to US300c/lb for the six months to December 2006 and to US250c/lb for the following half year.
The broker notes spot TC/RC charges have now fallen by almost half to where they were at the start of the year.