Commodities | Sep 24 2008
By Chris Shaw
Since the beginning of July, 3-month copper prices have fallen by more than 20% from what were all-time highs. Standard Chartered takes the view the fall is the result of both a general withdrawal from commodity markets on the back of a stronger US dollar as investors look to lower their risk profiles and weaker fundamentals in the Chinese market.
On the group’s numbers, China’s rate of copper consumption is decelerating, while at the same time production of products containing copper is falling. As it notes, most copper consumers in China are small to medium sized businesses and these have been struggling recently thanks to tight capital flows given restrictive policies put in place by the People’s Bank of China.
This weakening in consumption, which will also cause an increase in stockpiles, sees Standard Chartered cut its estimates for copper consumption growth to 7% year on year for 2008, down from 8% previously. When combined with slower economic growth globally as a result of the current financial crisis, the group suggests there will be more downward pressure applied to LME copper prices.
There is already some evidence of this occurring, as Standard Chartered points out LME inventories are already trending higher, bringing the copper market closer to surplus that has been the case of late. This has lead the group to drop its price forecasts for the metal, with its 3-month copper forecast for the December quarter being cut to US$7,000 per tonne from US$7,300 per tonne previously.
Prices are expected to remain fairly stable around this level for the first three months of 2009 and then the group sees further weakness, taking the price to close to US$6,500 per tonne in the June quarter.