Copper

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Copper Outlook

• by
• William Adams

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Last years Forecasts

• Last year market expected a small deficit for
  2005
• around 50,000mt
• Market to be in surplus in Q405
• Now looks more like 250,000mt deficit
• Price forecast was
• Prices to peak in Q404 _at_ 1.55/lb
• Falling to 1.12/lb Q405 1.00/lb in 06

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The Elusive Surplus

• Supply disruptions
• strikes, maintenance shutdowns, lower ore grades
  and equipment shortages
• All explain why the surplus has been delayed
• Luckily demand has been lower than expected
• Western consumption has fallen, although Chinas
  demand has remained strong in 2005
• 2005 - global growth some 2

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End of 2005

• Inventories peaked in 2002 2,000,000mt
• Fairly steady in 2004 2005 _at_ 800,000mt
• But mine output up in 2005 450,000mt about 3
  ( originally expected up 10)
• Refined output up 850,000mt some 6 (was
  expected to be up 10)

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2006 The Return of the Surplus

• Mine Output expected to rise 7
• up 1 million tonnes
• Refined Output to rise 8
• up 1.2 million tonnes
• as capacity utilisation rises too
• Consumption to rise 4 - 700,000 tonnes

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Small Surplus, BIG reaction

• Return to a surplus will keep market tight
• Not much cushion if there are further disruptions
• But with funds long and prices 2x the average
  over past 5 years alarm bells should be ringing
• If you were long - would you chance it?

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Conclusion

• What do we know
• Market relatively balanced by end 2005
• Supply set to out pace demand
• Risk to demand is on the downside
• Low stocks pipeline needs restocking
• Funds long some in for long term - others not
• Suggests prices should ease
• But fund liquidation may accelerate a decline

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