By Leia Michele Toovey- Exclusive to Copper Investing News

Copper prices will be low in the near term as weak demand and piling inventories exert downward pressure, however, for the long term analysts are bullish.

When the economic environment improves, investors will select profitable markets to invest in. The copper market considered by many to host the most profit potential of the base metals.  Despite growing stockpiles, China requires more copper than its domestic market can produce, therefore imports are a necessity.  Other markets - aluminum is a key example - are seeing demand quenched by domestic supply. The Chinese government announced early in the year its intent on stockpiling some key base metals. For all but copper, domestic supply will do, and the government is purchasing these metals at a premium price.

China’s State Reserves Bureau (SRB) has been dipping into the market to stock up on aluminum, zinc and indium, as well as soft commodities such as rubber. Jiangxi Copper refused to sell the SRB copper stating that it “could not afford to” because it only had enough for its own customers. That might force the SRB to buy on the open market. The Bureau has a lot of ways to purchase copper and probably it will buy on the international market because domestic copper smelters have limited stockpiles for the government to buy. China’s refined copper imports jumped 49 per cent in December from the previous month.

Copper’s depressed prices are reflective of the global economic climate. Over in London, copper dropped for a third consecutive day, as growing inventories signaled worsening demand. Inventories of copper in warehouses monitored by the London Metal Exchange rose 1.2 per cent to 422,450 metric tonnes, the highest since January 2004. Copper for delivery in three months on the LME dropped as much as $50, or 1.6 per cent, to $3,170 a tonne, the lowest intraday price since January 13. Copper has trimmed this year’s gain to 4.5 per cent, after slumping 54 per cent in 2008. Copper lost close to 5 per cent of its value in New York futures trade on Wednesday. India’s copper futures were flat on Thursday, after losing 6.4 per cent in the previous two sessions, tracking overseas markets. Analysts said copper would be pressured by weak demand outlook due to deepening global recession and huge inventory pile-up in the near-term.

Cumulative copper demand in 2008 rose 7 per cent down from 36 per cent in 2007.  The world copper market was in surplus by 286,000 metric tonnes in the first 11 months of 2008. This compares with a deficit of 201,000 tonnes for the same period of 2007. Mine production for the first 11 months of 2008 was 14.1 million tonnes, some 1.3 per cent lower than in the first 11 months of 2007. Refined copper production rose 2.6 per cent to 16.89 million tonnes. Consumption in the first 11 months of 2008 was 16.6 million tonnes, fractionally lower than the same period the previous year.

Company news

Newcrest Mining Ltd., Australia’s largest gold mining company, said second-quarter mining costs jumped 82 per cent as a drop in bullion production and a slump in the price of copper trimmed margins. Newcrest offsets the cost of mining gold by selling copper extracted as a byproduct. Newcrest stock has dropped 5.9 per cent this year and has a market value of AD$14.4 billion. Every 5 cents-a-pound decline in the copper price cuts earnings before interest and tax by AD$9 million. Copper output fell 4.4 per cent to 21, 232 metric tons in the quarter, Newcrest said.

African Copper Plc mothballed its Mowana copper mine in Botswana, citing an “immediate need” to raise as much as $15 million and “sharp reduction” in demand. The company’s future is in grave jeopardy, without obtaining the required financing it will not meet its obligations.

Rio Tinto Group said it will eliminate about 10 per cent of the workforce at its Kennecott Utah Copper unit, the second-largest producer of the metal in the U.S. A total of 241 workers, or 66 full-time and 175 contractor jobs, will be cut. The company has not announced any plans to reduce output from the mine. Kennecott’s Bingham Canyon mine has produced more copper than any other mine in the world in its 100 years of operation and meets about 13 per cent of the U.S.’s copper needs.

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