Bull market over for copper?

Has the bubble burst for copper, or is the bull market for the base metal experiencing a temporary lapse?

Reaching a spot price on the New York Commodity Exchange of $1.46(US) per lb at the end of last year, copper has been in decline since. Hudson Bay Mining and Smelting was recently quoting a selling price for the metal of $1.11, while prices on the futures markets have fallen below the $1 mark.

Surges in the price of the metal in the past have been tied to inventory shortages; the last two noticeable price surges occurred in 1979-80 and 1973-74. The most recent rise in price has also been attributed mainly to a heavy demand and low stocks.

One school of thought contends copper prices have fallen because users have chosen to make do with existing inventories rather than buy new supplies at a high price. Ac cording to these analysts, demand may pick up again in the coming months.

Anticipating the decline in copper prices was First Marathon Securities of Toronto. “If the December price peaks in copper and nickel are not surpassed quickly, an in creasing number of people will be convinced the price peak has already passed, which itself will trigger a further wave of selling,” writes the firm.

(Interestingly, nickel prices, which dipped considerably in early January, are flying high again, near $4 per lb.) Full or partial retreat?

It may be copper prices are in retreat and will not peak again for 6-8 years. Should the price lapse be temporary, First Marathon is not expecting the high prices to last for long, anyway; a sharp selloff is predicted before June.

According to the firm, inventory levels, seriously low at the end of the year, are bound to increase. “Prices rise and a backwardation widens until metal is attracted to the market,” writes the firm.

High prices will tend to keep demand down. “We believe that once all the statistics are available, it will become apparent a significant portion of the drawdown in producers’ and commmodity ex change inventories in recent months has in fact been for inventory rebuilding rather than for `real’ consumption,” writes the firm. If demand slackens, so will the price.

High prices will also attract increased production and help build up supplies. Mining operations shut down in recent years because of depressed prices could be revived and, on a short-term basis, scrap markets may be ex pected to boost the metal supply significantly.

First Marathon also points out that the troubled U.S. dollar will continue to help copper and other metal prices. “Despite the major rises seen in some metal prices in U.S. dollars, when measured in other currencies, these prices re main far below record levels,” First Marathon says.

“We don’t expect a major upward movement in the dollar during 1988, and hence, we anticipate that even if metal prices do back off, the continuing weakness of the dollar will moderate the falls.”

Copper in 1987 in the U.S. averaged 82.5 cents , compared with 66 cents in 1986.