COPPER: GAME, SET and MATCH an Outlook to 2016 by Simon Hunt, Simon Hunt Strategic Services
No. 29/2011 ● 12 December 2011 COPPER: GAME, SET AND MATCH An outlook to 2016 by Simon Hunt, Simon Hunt Strategic Services In our earlier reports on the copper industry we have drawn attention to the large involvement of the financial sector which has both purchased physical metal and been involved in the forward markets on a scale never before seen. Unlike the history of the metal, prices are no longer determined by the industry’s fundamentals, as set by the differences between changes in global consumption and world production, but by the activities of banks and others. Moreover, by warehousing much of their purchases outside the reporting system, markets are given the appearance of a tightness which in reality does not exist. Manufacturing companies that use copper in size, such as the utilities, the automobile industry and appliance makers, together with their fabricator friends, fully understand the ‘game’ which is being played by producers and the financial sector. Prices are way beyond true economic fundamentals given what they understand to be real consumption and not the ‘demand’ data put out by producers, banks and analysts. These prices are playing havoc with working capital, margins, working inventories, as well as with changes in the structure of consumption as these companies attempt to design copper out of their systems or, at least, minimise its use through improved designs and tighter specifications. One does not have to look beyond Figure 1, which shows world average cash costs compared with prices, to appreciate that something is indeed seriously out of whack. Figure 1: World Average Cash Costs versus Prices 1980-2010 Source: SHSS No.
[Show full text]