The Strategist

Amidst The Dividing Copper Market Trend, Investors Still Look At Long Term Gain


04/17/2015 - 11:54



The conference held at Santiago witnesses a dividing copper market trend. Future investors seem doubtful as the demand for copper has suddenly dropped though they are still looking at the long term gain.



Santiago – 14 April 2015 – Henry Sanderson reports to ft.com that Chile has opened up the conference for global copper market. The is one of the largest producer of copper but the prices for the said metal has been hovering “near five-year lows” amidst which the miners are struggling to get a job as their demands are waning, especially from China, the most important place for the copper miners.
 
Copper is used in electrical goods and for wiring purposes but during the outset of this year the prices for copper usage has reduced dramatically, which, in fact, is a similar scenario even in coal and iron ore commodity markets. Consequently, the growth rate of China’s economy has also slowed down.
 
Freeport-McMoRan is enlisted among the largest metal producer of the world, if judged on the basis of final output. The said company has declared that first time in last seven years it will be cutting down its dividend, which has also added a “significant pressure” on the minners.
 
The World Copper Conference of CRU, held at Santiago, will mostly divide the market among the attendees as some believe that the copper market will suffer the same fate of iron ore by facing a “prolonged downturn”. The doubt and debates raised among the copper market players is the result of copper’s high demand in the market for its “diverse range” usage as contrary to iron ores. Copper is useful to a wide range of industrial fields starting from construction to automobile manufacturer sections.
 
On one hand iron ore mostly suffers “excess supply”; whereas on the other hand, according to analyst forecast, copper supplies are under constraint. An analyst, Barclays says:
“Copper is continually constrained on the supply side, and that is unlikely to resolve itself in the near future”.
 
Nevertheless, as mentioned earlier, China produces the largest copper consumers which results in “the strongest in terms of demand”. However, this year China has shown “few signs of a pick-up” in the second quarter. The reduced demand from the largest copper market platform has affected the bank’s “credit approval” as the process has slowed down in a visible rate.
 
At present, the copper market is seeing an almost flat line in the graph of its activities’ front as manufacturer are not running a full production factory while the traders are waiting to sign up “long-term supply contracts.” The afore mentioned constrained copper supply scenario has seem to undergo a hundred and eighty degree turn, as the copper stocks lying in the various port houses suggests weak market demand. In a market veteran’s words:
 “I think we haven’t seen the worst yet — there’s more supply of metal coming in the second half”.
 
Chile produces one third of the world’s copper supplies in collaborations with its “state-controlled miner” companies like Anglo American, Antofagasta, Sumitomo, BHP Billiton and Codelco. In fact, the participants of the conference held at Santiago are eager to know how the fallen value of Chilean peso and crude oil prices will affect the copper miners.
 
Although the reduced rates would prove beneficial to them in order to help them cut down on their costs as a result small miner companies can also continue to produce copper. Yet the exact number of companies who will be able to continue their supply is what interests the conference attendees.
 
Nonetheless, unpredicted mishaps like the last month’s flood in the Atacama Desert which deferred miners operations, has caused uncertainty among the future investors in the country. The coppers produced in the Chilean mines are going through quality degradation as the production rate went up to meet the supply demand. Moreover, the Atacama Desert, among the driest place in the world, is home to Chile’s sixty percent copper mining sites, which were affected by the flood.
 
 
Amidst this dividing and uncertain market scenario, investors are looking into long term benefit plans. An industry veteran says:
“People see the long-term potential for the industry”. You have declining grades globally and if you can find a decent mine already operating or close to operating that adds value.”





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