By Leia Michele Toovey- Exclusive to Copper Investing News

Copper is often looked to as a barometer of economic health due to its copious use in building and construction.  When an economy is growing, copper use rises exponentially. In the early 2000′s rapid economic growth paved the way for an explosion in demand for the red metal. In late 2005 and early 2006 copper prices were at record highs, encouraging miners to operate at maximum capacity irrespective of operating costs.  Fast forward to the present time and as a result of the recession copper prices are more than 60 per cent lower than at the price peak in mid-2008. The incentive for miners to achieve maximum output regardless of cost has evaporated. Miners have reacted to the global economic slowdown and the credit crunch by drastically cutting capital expenditure, reducing staff, and altering mine plans to favour cheap ore production.

Copper’s near term prospects are bleak, however, the loss of many mining projects in the production pipeline due to the credit crunch and low copper prices gives hope for a copper price revival. The immediate problem facing copper miners of all scales is maintaining a positive cash flow. Recent acquisitions encouraged by high metals prices have left several of the major diversified mining firms with large debts.  Refinancing debt and securing more debt financing has become a key issue due to the credit crunch and this is forcing many miners to pursue unconventional means to fund their operations.  This involves selling stakes in operations in exchange for cash, turning their backs on shareholders to generate capital by issuing more stock. Some, have put their mines on care and maintenance to preserve capital.

It is hard to pinpoint when a recovery can be expected; however many analyst have penciled in 2010 as the magic year.  In the meantime growing stockpiles that are exerting downward pressure on prices need to be depleted. Once these stockpiles are “worked off” demand needs to increase enough that it requires more mine production. The global copper market saw a surplus of 329 000 t in 2008, the World Bureau of Metal Statistics (WBMS) said on Wednesday. That figure compared with a 119 000-tonne deficit in 2007. World refined copper output rose 2.8 per cent to 18.48-million tonnes last year, while consumption rose only fractionally over the period to 18,16-million tonnes. Meanwhile, global copper mine production dipped by 0.7 percent from 2007 to 15.53-million tonnes.

As for now, despite the signing of the stimulus plan, the current economic state is dire. Many analysts are skeptical that the stimulus package will do anything to stop the downward spiral of the US economy.  This week commodities plunged to their lowest level since June 2002, led by energy and industrial metals. The Reuters/Jefferies CRB Index of 19 prices dropped for the sixth straight session, the longest slump since December. The gauge touched 203.25, the lowest since June 21, 2002, and has slipped 11 per cent this year.

People continue to flock to the precious metals as a safe haven over fears that low interest rates and government spending will devalue currencies. Gold topped $975 an ounce, reaching the highest price since July, silver and platinum also rose. Copper tumbled the most in 3 months, 7.2 per cent, as a recent report showed that manufacturing in the state of New York contracted in February at the fastest pace on record, signaling the U.S. recession that began more than a year ago is intensifying. Copper inventories monitored by the London Metal Exchange have soared 55 per cent this year.

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