High copper inventories raise concerns

By Walter Mares
Copper Era Managing Editor
Published on Wednesday, November 11, 2009 8:12 AM MST

People in Greenlee and Graham counties may be unconcerned about the price of rice, a cup of tea or the cost of a movie ticket in China.

Not so when it comes to other matters in this Asian nation, whose economy continues to boom. What China does with copper has a resounding impact on the rest of the world, including the two faraway rural communities of Greenlee and Graham in the desert of southeastern Arizona.

At present there appears to be cause for local, as well as global, concern with what is happening in China: a possible significant decrease in its consumption of copper. That is making stock market analysts nervous about the fortunes of the always-volatile copper industry.

Copper prices dropped 2.6 percent last week on concern that consumption of copper, primarily in China, may falter. Copper futures for December delivery fell 3.6 cents, or 1.2 percent, to $2.957 a pound on the Comex division of the New York Mercantile Exchange.

According to the Bloomberg News Service, an industry watchdog, copper prices have seen a slight decline as rising inventories triggered a concern that the demand for copper is waning. The outlook is based on stockpiles monitored by the London Metal Exchange, which have jumped 1.5 percent to 379,825 metric tons as of Nov. 5.

Stockpiles are at their highest level since May 11, marking the biggest advance in six weeks.

"There's some uncertainty about future demand," Patrick Chidley, a New York analyst, said. "People are seeing this as an opportunity to take some profit."

Connecticut-based industry analyst Edward Meir said, "We are still wary about metals," adding that copper has "uninspiring fundamentals, typified by patchy demand and rising LME (inventory) stocks."

Earlier this year, copper rebounded from bargain basement prices to its current profitable level as Chinese imports surged. China put into effect its own form of an economic stimulus package presently being used in the United States in an attempt to revive a staggering economy.

While copper prices jumped this year after Chinese imports surged, inventories at warehouses monitored by the Shanghai Futures Exchange have soared 62 percent since Aug. 1, raising concern that demand from China is slowing.

Chinese consumption of copper has been a key factor for mining giants like Freeport McMoRan Copper & Gold Inc. When FMI acquired Phelps Dodge in 2007, FMI officials were quick to point to China's booming economy as a strong reason to have confidence in the copper market.

With the acquisition of PD, Freeport picked up the ore-rich Tanke Furugame mine in the Republic of the Congo and Morenci, PD's flagship mine in North America. With the deal came the new mine under development in Safford. Morenci and Safford are touted as having rich reserves that will carry mining for decades.

The rise of China saw an anemic copper market suddenly become flush with investors and capital. Morenci's work force jumped to about 4,000 and Safford was heavily hiring workers. Signs of economic trouble began appearing by August 2009, and by November the first in a series of layoffs began.

FMI announced in December that it would be laying off about half of its Morenci work force in March 2009. Safford was slated for major cuts. That is exactly what happened.

A small number of miners have been called to work in recent months, but FMI is tight-lipped about how many and in what capacity those people are employed. Unlike anything experienced with Phelps Dodge, FMI has gone so far as requiring the news media to submit questions in writing before it will provide any answers.

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Comments

11 comment(s)

Rocha Not Unbiased wrote on Nov 15, 2009 11:09 PM:

" Oscar Rocha is the CEO of Southern Copper. Who would question that he has a stake in artificially driving up the price of copper?

Copper prices will continue stagnating until there is a solid economic turnaround in the global community increasing the demand for copper.

Supply and demand will drive the price. Speculators are artificially propping up the price now. Inflation will also increase the price, but will not increase the demand for the commodity. "

Captain America wrote on Nov 15, 2009 8:00 AM:

" It's probably good that China has a lot of copper, the chinese tend to sell stuff for cheap, so that'll save money on our end. Plus I'm not real fond of the idea of mining for more copper. Mining can be pretty dangerous, and bad for the enviroment "

Pro Company wrote on Nov 14, 2009 11:21 AM:

" Speculation, Speculation!! Go to Bloomberg online and type Oscar Gonzalez Rocha in the search box and read the article from Oscar. The article talks about $4.00 a pound copper for 2010!! Talking about economics, how does Clifton get by with only 28 school students and keeps its doors open when we shut down schools in Phoenix with 500 or less students!!! We need to combine the local schools!!! Doesn't make any sense. "

PimaTwo wrote on Nov 14, 2009 8:34 AM:

" How many times has this happened arounf these parts? If it ain't a bad economy it's a strike or some other sideshow adventure.
The main rule of thumb is don't put all your eggs in one basket. "

Stockpiling wrote on Nov 13, 2009 12:07 PM:

" I have been warning of this for the last 5 years even going as far as to say that the mine will only be able to keep this production pace for another year or two. I have warned that the copper is being stockpiled and when anything is stockpiled, the price goes down and bottoms out. Basically they have high production and the product isn't being turned over. This has been going on for longer than our bad economy. Phelps Dodge sold out when they knew that this would catch up. It was inevitable. "

too good wrote on Nov 13, 2009 10:59 AM:

" The old saying "If it's too good to be true it is"
When will we as Americans finally realize we need to count on our selves and not China or any other country to help our economy?? People in the Graham and Greenly county areas saw copper as the pot of gold at the end of the raiinbow, and sadly this was not the case. Please let this be a lesson the next time anyone with a get rich scheme with jobs comes your way. head the other. "

Mark B wrote on Nov 12, 2009 8:43 AM:

" As far as alternative industries being needed, anybody’s free to start new businesses – it just takes imagination, desire and hard work.

In my book any new enterprises are welcome in Arizona. I welcome new mines and new call centers. Compared to the rest of the world, we should feel blessed to have the ones here now. "

Mark B wrote on Nov 12, 2009 8:41 AM:

" Long term copper demand is strong as current worldwide reserves are depleted with very few mines identified to replace them (here or anywhere). Short term there will be hiccups in price as the economy continues to flounder. Just as my 401k is struggling, but by the time I retire, it will have bounced back and grown thanks to the magic of compound interest. The good thing is that we’re comfortably over $2/lb. "

Copper Prices Too High wrote on Nov 11, 2009 11:52 PM:

" The price of copper has been artificially increased due to speculation rather than supply and demand. Currently, there is an oversupply on copper worldwide and China is sourcing much of its' own needs through its' own mining operations. It might be a long time before the copper industry recovers in the US. "

Jim near Pima wrote on Nov 11, 2009 8:48 AM:

" When we moved here 5 years ago it was obvious that this area needed something other then the 3 C's to survive. Instead of putting the future in the hands of copper and salsa perhaps we should look at other areas that are more stable?? A great retirement area??, A quiet area for a service company to work in??? "

AZ wrote on Nov 11, 2009 8:41 AM:

" Isn't there a typo in regards to "trouble began appearing by August 2009"? Trouble began appearing by August 2008 I do believe. Layoffs started happening Novemeber 2008 and the big layoff happened March 2009. So trouble had to begin in August 2008 NOT 2009. "

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