Copper markets remain strong in first half despite falling prices

To the first of June, copper in London averaged about $1.42, which compares with $1.18 for all of 1988 and 81 cents for 1987. Copper topped $1.60 in January of this year.

With investors seeming to pay more attention these days to a strong U.S. dollar rather than precious or base metals, the metals markets have been in a slump. Also tending to hog the spotlight have been the labor contracts coming due this year at copper refineries and mining operations.

Securities firm Nesbitt Thomson Deacon, in a summer research publication, lists three North American refineries — Noranda’s CCR, Asarco’s Amarillo and Magma’s San Manuel — where contracts have come up for renewal. (CCR workers settled June 20.) Also, mine worker contracts expire this year at Highland Valley Copper, Brenda Mines, BHP-Utah International (Island Copper), Asarco (Mission, Ray) and Magma (Pinto Valley, San Manuel).

According to Nesbitt, about 8% of non-communist world mine production and 14% of non-communist refined production could be affected by labor contracts in 1989.

A news report has the Mineworkers Federation in Peru calling for a national strike, probably in August. Miners in Peru, a country rich in copper and other metals, have been restless the past few years.

Also, the news from the Bougainville copper-gold mine operation in Papua New Guinea has not been good. Supply has been disrupted by sabotage by local villagers, who have been making land compensation claims.

Brown Baldwin Nisker James Capel of Toronto, in a recent copper analysis, points out demand for copper the past few years has more than kept up with production and helped to keep inventories at minimum levels.

The brokerage house writes that if the price drops to the $1 level, “copper producers are unlikely to perform well during the transition, even though the metal price would only be returning to a sensible level. Volatile price moves on the upside are likely if enough unpredictable, but expected production interruptions occur.”

The analysts project a $1.30 average for 1989.

London-based Metals & Minerals Research Services reminds its readers, in a quarterly report, the copper market began this year “with exceptionally thin inventory cover and a welter of bad news from some important producers.” Also, prices were in backwardation in London and New York.

Barring any labor disputes, Metals & Minerals foresees only a small deficit in supplies for 1989. “Most of this will have accumulated in the earlier part of the year and, as 1989 progresses, rising primary refined copper output may cause a further weakening in free market prices,” writes the company.

“These (prices) are unlikely to nose dive, however, as refined inventories will remain low throughout the year and should end 1989 no better than in the previous year.”

For 1989, the London-based company is projecting an average copper price of $1.25 (again, if there are no labor disputes).

From 1983 to 1987, copper demand grew steadily, fed in large part by construction activity and consumption of electrical products. But when these markets leveled off in 1988, copper demand dived, Nesbitt points out. “Output grew at a higher rate than consumption (2.7%) but was still unable to meet demand,” writes the firm.

The strongest demand for copper, the company explains, usually occurs during the first or second quarter, when prices are generally at their highest. Demand is normally weaker during the third quarter (the summer months), when there is not always a corresponding drop in production.

“Increased production could catch up to demand in the third quarter of this year, putting copper firmly in surplus,” the Nesbitt researchers write.

Rising production levels during the next few years are sure to bring copper prices down, barring any large increases in demand or disruptions of supply. Global non-communist copper output could jump by 5% in 1989, Nesbitt predicts. In 1991, world output could jump another 5% on the strength of only one new mine, the Escondida project in Chile.

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