By Leia Michele Toovey- Exclusive to Copper Investing News

Copper futures started the year on a note of optimism.

On January 3, the first day of trading in 2009, copper peaked at US$1.6225, the contract’s highest point since December 2 2008.  Copper was just one of the base metals to rally as a result of the re-weighting of the major commodity indexes.  Once a year commodity index compilers recalculate the weightings for the individual commodities in their indexes. The re- evaluation that took place early this month will fuel volatility and allow traders to make easy profits in the energy, metals, grains and livestock sectors.

Copper continued its upward momentum through January 5, and then pessimism reigned supreme. Rising inventories shifted the focus to the economic slowdown. The London Metal Exchange-monitored copper warehouse stock levels rose by 775 tonnes, bringing total inventory levels to a near-5-year high at 340,550 tonnes.  COMEX copper stocks went up 260 short tons to 34,514 short tons as of Wednesday.

Company news

Codelco, the world’s largest copper mining company, will invest $12 billion in the next five years. Codelco plans to pump $2 billion into expansion in 2009 to compensate for the loss in production from its aging mines. Output slid 6.6 per cent in 2007 to 1.67 million metric tons, and dropped 11 per cent in the first 10 months of 2008 from the year earlier.  Codelco will invest the other $10 billion gradually, as copper prices recover. The immediate term investment is a necessity for the company to increase efficiency and reduce costs.

Despite copper’s start to the New Year, a few companies have recently announced output cuts. LS Nikko Copper Inc, operator of the world’s third-largest copper refiner and smelter, plans to cut this year’s output by 10 per cent on slump in demand. In an emailed statement to the press, Codelco announced that production would be reduced to 515,000 tonnes of copper cathodes in 2009, compared with its full capacity of 570,000 tonnes. LS Nikko is a joint venture between LS Corp and Nippon Mining and Metals Co.  The company is the world second biggest buyer of copper concentrates.  Other companies that have mentioned that they will announce cutbacks in the coming weeks are Sumitomo Metal mining Co, Japan’s second largest copper smelter, and top nickel producer, as well as Mitsubishi Metals Corp., Japan’s third biggest copper producer.

Southern Copper Corp, (NYSE:PCU) a fully integrated copper producer with mining interests in Peru and Mexico, has been downgraded from “buy” to “hold” by Citi group. For the downgrade, analysts cite that near term growth opportunity is outweighed by the recent run up in share price.  The company’s stock has doubled in value over the past seven weeks.   The company faces a few major market risks, including low copper prices, weak global copper demand, and building exchange inventory.  However, the company is better positioned that most to weather the storm. Southern Copper has long-life, low-cost mines, and a solid balance sheet.  This will enable the company to operate profitably in an extended downturn, long after major competitors are in financial trouble.