Consultant predicts copper price hitting $1.40 in ’93, $2 by ’95

Copper will rise to US$1.40 per lb. in 1993 and US$2 in 1995 says consultant William Hill of MPH Consultants Ltd.

Hill, who has 25 years of experience in consulting to the copper industry, was speaking at a recent discussion group meeting of the Mineral Economics Society of the Canadian Institute of Mining, Metallurgy and Petroleum in Toronto.

The consultant has developed his own price forecasting techniques which he says have proved consistently accurate in a field that is littered with the punctured forecasts of many.

“The majority of forecasters follow the crowd and they are almost always wrong,” he said, emphasizing the point by showing a host of lemmings streaming over a cliff to oblivion.

“Many forecasters do not fully grasp the fundamentals of the copper market and to compound matters, they are far too much influenced by what they read in the newspapers.”

Hill brought up the last point a number of times and it is obviously a long-standing sore point. “Newspapers emphasize the bad news and discount the good. Mine closures are given headlines but there is not much said about new capacity coming on line — and the same story holds true for copper smelters, too.”

A vital feature of copper supply is the remarkably consistent contribution of secondary metal — scrap. From 1920 to the present, scrap recycling has grown at about 1.7% per annum in an almost straight, upward-trending line. Despite depressions, recessions and the cyclical gyrations of the copper price, scrap has maintained a consistent, unscathed growth.

“This is where forecasters frequently go wrong — they discount scrap,” Hill said.

The reason for scrap’s steady growth is that it is generated by attrition and little influenced by economics; cars, refrigerators and every other electrical item have finite lives and the copper contained therein ultimately finds its way to the scrap yard.

Buoying Hill’s optimism on future copper prices is the potential demand of an exploding world population. For the past 20 years, copper consumption has remained steady at 10 lb. per person per year. With an increase of one billion people by the year 2000, there will be a demand for an additional five million tons of metal.

This will bring world copper demand to 19 million tons (1991 consumption was 9.5 million tons) and Hill is unable to visualize where all the new tonnage will be coming from.

New production from both North and South America will make a major contribution but there will still be a shortfall. There is no new capacity scheduled beyond two years from the present.

After 1995, there is nothing on Hill’s price prediction charts but a coy US$2 plus. A questioner snapped up the bait and asked if it would be a good time to buy copper stocks. “Sure,” Hill said, “if you don’t have anything else to sweat about.”

One fragment of Hill’s discourse was not upbeat. According to his calculations, the price of copper would need to reach US$2.50 to make an ore reserve grade of 0.3% profitable enough to mine.

The current grade of Gibraltar Mines’ (TSE) mining operation in British Columbia is 0.3% copper. If Hill’s calculations are correct, what will be the fate of the many “Gibraltars” now in the wings?