The average price of copper will likely fall around 30% in 2007 on declining demand in the U.S. housing sector and Group of Seven countries, as well as a ramp-up in production by miners in China and elsewhere in response to high prices, Merrill Lynch said in a report Friday.
Throwing water on the argument that hedge funds and institutional investors will continue to drive copper futures higher as they increase their portfolios’ exposure to commodities, Merrill predicts copper’s weakening fundamentals will douse investor interest, pushing prices nearer to the cost of production, as is the case with aluminium.
“If copper supply demand deteriorates to the situation of aluminium, it too will be priced…close to (the) cash cost of production,” the report said.
Merrill estimates the cash cost of production to be near $3,725 a metric ton, way below the cash price of copper currently. On Friday, the cash price of copper was at $7,220.50/ton on the London Mercantile Exchange.
A 30% drop would bring the price of copper to $5,054/ton, which it believes is a price low enough to spur Chinese consumers to restock their empty warehouses.
In May, copper, the traditional flagship of the base metals complex, surged to an all-time high of $8,825/ton, helping to float other base metals to their own highs. It has traded sideways for the past two months, unable to build momentum for a break out of its current trading range of $7,000-$8,000/ton.
Merrill forecasts copper production will rise 5.3% in 2007, more than double the expected growth in demand of 2%, which should pressure prices. It is predicting a copper surplus of 500,000 tons in 2007, rising to 750,000 tons in 2008, before declining to 600,000 tons in 2009.
The surplus is due to a strong response from miners to high prices and a slowdown in copper consumption in the U.S. and Europe, the report said. “There are considerable copper expansions and growth projects already being commissioned that should drive production growth of 5.3% in 2007.”
Meanwhile, the housing sector in the U.S., which consumes possibly 5% of the world’s copper, is likely to continue its decline. This slowdown in the U.S. housing industry and other sectors of its economy will likely have an impact on China’s consumption as well, since much of its copper exports are destined for the U.S. market.
“We expect Chinese copper consumption to slow in line with the products that it manufactures for export to the USA,” the report stated.
However, Merrill expects China’s consumption, already a quarter of the world’s total, will actually rebound strongly from a decline of 1.9% this year to 8% growth in 2007. Still, it expects that won’t be enough to eat up the surplus in the market.
With surpluses likely in the next three years, global copper inventories should recover from levels today, which are near their historical lows, and Merrill suggests this trend has likely already begun.
In the past two weeks, copper stocks at LME warehouses have risen on a near daily basis, a trend Merrill believes is a clear sign of weakening demand, especially in China. It predicts inventories will be sufficient for around 2.7 weeks of consumption by the end of 2007 – compared to just three days now.
The recent inventory buildup has so far mostly been confined to Asia, and Singapore in particular, a sign that the trend is being driven by declining Chinese consumption, the report stated.
A further cause to believe stocks will likely increase is that the copper miners face less risk its production will be disrupted by strikes, natural disasters or civil unrest, Merrill said.
“What the market has miscalculated in the copper market in the last two years is the extent of supply disruptions that have hit the market.”
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Assets of Hamburger Aluminium Werk sold to Trimet for restart
Aluminium major Norsk Hydro said Friday that the assets of Hamburger Aluminium Werk will be sold to German Trimet Aluminium with effect as of December 1.
On Friday the three HAW shareholders, Alcoa, AMAG and Hydro, with 33.33% each, signed respective agreements with Trimet and with the owner of the site’s real estate, the Hamburg Port Authority. Trimet was to restart the plant, which would offer at least 400 jobs in the new operation, according to a joint press release.
The companies said the three current owners in 2005 decided to close HAW because of the high power prices in Germany. Since this decision was made, the price for primary aluminium, as noted on the London Metal Exchange, has clearly increased, while spot price for the raw material alumina has come sharply down. However, forward prices in the German power market have increased,” the groups said.
The statement said the HAW shareholders still missed a German power price regime that provided a sustainable, long-term perspective for aluminium production. “Based on a specific product portfolio, Trimet is ready to take the challenge for restarting the plant and create new employment,” the companies said, adding that the Hamburg Port Authority had facilitated this transaction by agreeing to the termination of HAW’s lease agreement, at terms acceptable to both parties.
“As main part of today’s deal, all HAW assets are sold to Trimet who will restart the anode plant and the electrolysis. In addition, Hydro will sell to Trimet certain site infrastructure assets that it acquired from HAW when it was closed. Hydro and Trimet will simultaneously enter an agreement to provide site services to one another,” the statement said.
Hydro and the Hamburg Port Authority have agreed on a draft of a new lease agreement for the casthouse area, which until now has been subleased from HAW. In addition Trimet and the Hamburg Port Authority have agreed on a new lease agreement for the HAW site, the companies said.
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Russia exported in January-September 3.053 million metric tons of primary aluminium, 1.7% less on the year, while refined copper exports during the period fell by 11.3% to 187,000 tons, the Federal Customs Service reported Friday.
Russia exported in January-September 3.053 million metric tons of primary aluminium, 1.7% less on the year, while refined copper exports during the period fell by 11.3% to 187,000 tons, the Federal Customs Service reported Friday.
Exports of nickel during the period increased by 3% on the year to 188,000 tons.
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Base metals close softer in London: Nickel pares gains, copper down 5%
Base metals on the London Metals Exchange fell Friday, with copper leading the way with a drop of about 5%, due to general profit-taking and speculative selling, traders and analysts said.
Copper broke out to the downside from its recent trading range between $7,000 and $8,200 a metric ton, hitting a more than four-month low of $6,900/ton.
Speculative, momentum and CTA selling pressured prices, Robin Bhar of UBS in London said, driven in part by an increase in stocks. According to LME warehouse data, copper stocks Friday increased 1,625 tons to 148,200 tons.
“Copper suffered a blow to the downside on the back of fund liquidation and fresh selling after Thursday’s steady close,” said Michael Cuoco of Mitsui Bussan Commodities in New York. “On the radar screen at the moment is the 200-day moving average of $6,860/ton.”
LME copper will likely move to a new lower range of $6,700-$7,100/ton, analyst John Kemp at Sempra Metals said. “The market has been looking for a break lower for some time,” he said. “Whereas previously there was good support that made the market nervous about going short, the longs are now running out of ammunition.”
However, Kemp doesn’t expect an “immediate price collapse.”
Meanwhile, pressure in the copper market swept over into the other LME metals.
LME three-month nickel prices fell to Friday’s lows, driven by profit-taking, said a base metals trader. Nickel trades at $29,500/ton, down from Friday’s high of $31,200/ton.
Early Friday, the LME said it lifted the daily backwardation limit of $300 a metric ton on nickel it imposed Aug. 16. A reversion to the normal spread lending guidance will be effective from Monday.
Moreover, Bhar said physical traders report that demand is currently low and significantly off the frenetic levels of three to six months ago.
LME three-month aluminium gave back all of Thursday’s gains to trade at Friday’s low of $2,705/ton. Earlier Friday, a trader said LME aluminium’s poor fundamentals leave the metal to take its direction from other metals.
Despite a new record high of $4,580/ton earlier Friday and a continuous drawdown in stocks, zinc prices gave back the day’s gains to trade at a low of $4,260/ton on profit taking and overall base metals weakness. According to LME warehouse data, LME zinc stocks fell by 1,550 tons to 95,620 tons Friday, a 16-year low.
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Zambia’s Muliashi Copper Mines: Feasibility study ready by April 07
Zambia’s Muliashi Copper Mines’ updated feasibility study is expected to be ready by April 2007, paving the way for initial copper production at the mine, Luanshya Copper Mines’ chief executive officer said, Zambia’s state-owned daily reports Monday.
Derek Webbstock told The Times of Zambia that the study would look at various issues including engineering designs and construction of the mine.
According to an official with Zambia’s Ministry of Mines and Minerals Development, construction of the 50,000-tons-a-year copper mine is behind schedule, adding that the delay in the start of production is blamed on protracted talks between the Zambian government and Switzerland-based J&W Investments over a mine development agreement.
The government is pressing for a revised agreement that would entitle it to gain from a future international copper price increase, an industry insider told.
Last year, the Zambian government reached an agreement with Equinox Minerals Ltd., owners of the $762 million Lumwana Copper Mine that will entitle it to share profits with the company in case of a future copper price increase.
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Oppenheimers sell Anglo American shares
E. Oppenheimer & Son, the Oppenheimer family investment company, Friday sold part of its stake in diversified natural resources group Anglo American PLC (AAUK) to a Chinese investor, in a move one analyst said could precipitate a bigger deal.
The Oppenheimers have sold 17 million Anglo American shares to China Vision Resources Ltd., reducing their stake in the company to 2.29% from 3.3%, an Anglo American spokesman said. China Vision Resources is owned by “private individual” Larry Yung, the spokesman added.
China Vision paid some GBP425 million for the stake, according to a person familiar with the situation.
Larry Yung is chairman and managing director of CITIC Hong Kong (Holdings) Limited, and an executive director of the CITIC Group conglomerate. CITIC couldn’t immediately be reached for comment.
In a press release, E Oppenheimer & Sons said it will continue to hold more than two percent of Anglo American, and will retain its 40% stake in diamond producer De Beers.
The Anglo American spokesman said, “This is part of the Oppenheimer family’s stated intention to diversify their investments.”
He added, “they remain fully supportive of the Anglo management team, the restructuring process under way and the appointment of (new chief executive) Cynthia Carroll,” he added.
Anglo said Oct. 24 that Alcan Inc.’s Cynthia Carroll will become chief executive when current CEO Tony Trahar steps down in March, the first time in the mining company’s history it will be headed by an outsider and a woman.
One analyst said the share purchase could herald the start of a bidding contest for Anglo American, saying it could be “the first tank on the lawn.”
“Everyone had thought that Xstrata PLC (XTA.LN) or Rusal were going to wait,” he said, “this could well change things dramatically.”
Mining sector watchers regard Xstrata and Rusal as credible bidders for Anglo American. Anglo American is in the midst of a restructuring – spinning out its paper and packaging business and selling down its stake in AngloGold Ashanti (AU).
Xstrata declined comment.
But the analyst also said Chinese investors often take stakes in companies to have better leverage over them and as a consequence ensure a steady supply of raw materials.
The sale underscores China’s attempts to bolster its hold on mining resources and accelerates Anglo’s transformation from a chiefly South African gold and platinum producer to a global industrial metals producer.
At 1625 GMT, Anglo American’s shares in London were trading up 25 pence, or 1.01%, at 2,490 pence, outperforming a downbeat mining sector.
In an emailed statement Rusal said its strategy was to strengthen its position in aluminium and alumina.”
“No additional decisions concerning the strategy have been made so far,” Rusal went on to say.
“Any change in the strategy is a prerogative of the Board of Directors of the United Company which will be formed by 1 April 2007. Any changes in the strategy are possible only when the deal is closed.”
Rusal is currently finishing up a deal to form the world’s biggest aluminium company, combining with smaller Russian peer Sual Group and the alumina assets of Swiss commodities trader Glencore International AG.
HSBC Holdings PLC (0005.HK) advised China Vision Resources.
Founded in 1917 by Ernest Oppenheimer to exploit the world’s biggest gold field near Johannesburg, Anglo expanded into banking and sugar as the country’s isolation during apartheid stopped it buying mines elsewhere.
It moved headquarters to London in 1999 and has since bought copper mines in Chile and asphalt businesses in the U.K. Anglo also took over Johannesburg-based diamond producer De Beers, of which the Oppenheimers hold 40 percent.
E. Oppenheimer & Son, will invest more of its money in African non-mining businesses and South African private equity units, it said in an e-mailed statement.
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Base metals close softer in London: Nickel pares gains, copper down 5%
Base metals on the London Metals Exchange fell Friday, with copper leading the way with a drop of about 5%, due to general profit-taking and speculative selling, traders and analysts said.
Copper broke out to the downside from its recent trading range between $7,000 and $8,200 a metric ton, hitting a more than four-month low of $6,900/ton.
Speculative, momentum and CTA selling pressured prices, Robin Bhar of UBS in London said, driven in part by an increase in stocks. According to LME warehouse data, copper stocks Friday increased 1,625 tons to 148,200 tons.
“Copper suffered a blow to the downside on the back of fund liquidation and fresh selling after Thursday’s steady close,” said Michael Cuoco of Mitsui Bussan Commodities in New York. “On the radar screen at the moment is the 200-day moving average of $6,860/ton.”
LME copper will likely move to a new lower range of $6,700-$7,100/ton, analyst John Kemp at Sempra Metals said. “The market has been looking for a break lower for some time,” he said. “Whereas previously there was good support that made the market nervous about going short, the longs are now running out of ammunition.”
However, Kemp doesn’t expect an “immediate price collapse.”
Meanwhile, pressure in the copper market swept over into the other LME metals.
LME three-month nickel prices fell to Friday’s lows, driven by profit-taking, said a base metals trader. Nickel trades at $29,500/ton, down from Friday’s high of $31,200/ton.
Early Friday, the LME said it lifted the daily backwardation limit of $300 a metric ton on nickel it imposed Aug. 16. A reversion to the normal spread lending guidance will be effective from Monday.
Moreover, Bhar said physical traders report that demand is currently low and significantly off the frenetic levels of three to six months ago.
LME three-month aluminium gave back all of Thursday’s gains to trade at Friday’s low of $2,705/ton. Earlier Friday, a trader said LME aluminium’s poor fundamentals leave the metal to take its direction from other metals.
Despite a new record high of $4,580/ton earlier Friday and a continuous drawdown in stocks, zinc prices gave back the day’s gains to trade at a low of $4,260/ton on profit taking and overall base metals weakness. According to LME warehouse data, LME zinc stocks fell by 1,550 tons to 95,620 tons Friday, a 16-year low.
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Zambia: Copper, uranium deposits found near Lumwana
Latest results from mineral exploration drilling at Kanga prospect in Lumwana have confirmed the presence of copper and uranium deposits.
Equinox Minerals president and chief executive officer, Craig Williams, said copper and uranium intercepts reported at Kanga had similar grades and thickness as those within the Malundwe pit to the north of Lumwana.
In a Press statement released yesterday, Mr Williams saidall the exploration drill holes successfully intersected mineralised ore schists at an unexpected levels indicating the potential for further shallow mineralisation in the area.
According to Mr Williams, all holes drilled to date have intersected copper mineralisation that occurs as chalcopyrite with subordinate amounts of bornite while cobalt is also present
“Equinox Minerals has again demonstrated ongoing success through the application of its exploration techniques and strategy. Most importantly, the Kanga copper and uranium mineralisation is close to the Lumwana plant site which is now under construction, thereby enhancing the potential to extend the mine into this area,” he said.
Mr Williams said the ongoing drilling at Kanga would continue to define additional copper and uranium mineralisation to a reportable standard.
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China’s aluminium exports and imports fall in first ten months
China’s aluminium exports in the first ten months dropped 7.3 percent from the same period a year earlier and imports also fell 3 percent, according to the General Customs Administration Friday.
Exports totaled 1.04 million tons, down 7.3 percent from the same period a year earlier. October’s exports were 72,420 tons, falling 33.64 percent compared to a year earlier.
Aluminium imports also dropped 3 percent in the first ten months to 1.01 million tons.
October’s imports were 82,353 tons, down 18.44 percent from September.
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Zinc-focused junior raises A$11m
A placement to institutional investors has raised A$11-million for Terramin Australia as the emerging zinc producer looks to accelerate work on its flagship projects in Algeria and South Australia.
The company announced on Thursday it had placed 6,7-million ordinary shares at A$1,64 a share in a capital raising arranged by, and made to domestic and international institutional clients of, Austock Corporate Finance Limited.
Settlement would occur on November 14, and the new shares would rank equally with existing shares.
On completion of the placement, Terramin would have 83 927 008 ordinary shares on issue. Participants in the placement represent a mix of current and new institutional investors from Australia and offshore which had enabled Terramin to broaden its institutional shareholder base.
The company said in a statement that it would use the proceeds raised to fund the rapid advancement of the infill diamond drilling and prefeasibility programme under way at the Oued Amizour zinc project, in Algeria.
Moreover, it planned to fund key mine infrastructure, including the electricity substation for the Angas zinc project, south of Adelaide, which was due to start production late next year.
Terramin reported that, in Algeria, the drilling of the 50-million tonne Tala Hamza zinc deposit within the company’s 65%-owned Oued Amizour zinc project was being accelerated to allow an estimation of a Jorc resource(s) early next year.
“The data from 40 diamond drill holes drilled up until 1994 by ORGM (the Algerian Government exploration agency) and which defined the deposit, is reported to be of high standard so Jor compliance should be achieved soon,” Terramin MD Dr Kevin Moriarty said on Thursday.
“Under a drilling programme to confirm the ORGM data, the third hole is currently near completion, the first hole which had to be abandoned after entering high grade mineralisation, will be redrilled, and the second hole, TH002, intersected 180 metres of mineralisation from 321 metre depth,” Moriarty reported.
He said that the TH002 mineralised core was on the way to Australia for assaying, adding that the drill programme would continue to close up the spacing to 40 m to 50 m with infill holes between the 40 ORGM holes to enable estimation of reserves.
“The accelerated programme will employ a new third heavy duty rig to concurrently test the deposit’s extension southwards where mineralisation has been intersected over several kilometres.”
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Examples of Antimony Trioxide Mixture Flame-Retarded Polymers
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