Markets | Copper

Strong Chinese demand growth, supply-side disruptions and low exchange inventories supported copper prices in the face of weaker copper demand in the US and Europe in the second half of 2007. The LME copper cash price averaged $3.24 per pound or $7,139 per tonne for the year, representing a 6% increase over the average price in 2006.

Following the extensive destocking which dampened Chinese copper demand in 2006, large-scale Chinese imports of copper cathode resumed in 2007 as inventory rebuilding and rapidly rising end-use demand drove strong growth in refined copper consumption. This more than offset slower growth in the developed world, as softer demand persisted in the US, exacerbated in the second half by a weak housing market and subsequent global credit issues. Demand was also weaker in Japan and Western Europe during the second half of the year, due to slower end-use markets.

Despite lower demand in the Western World, global copper exchange inventories ended 2007 at 237,103 tonnes, 15,430 tonnes lower than the closing level in 2006. A sharp fall in Chinese exchange stocks towards the end of the year countered rises elsewhere.

On the supply-side, structural difficulties, equipment shortages, labour unrest and natural disasters all contributed to significant mine underperformance during the year, lending additional support to copper prices and ensuring ongoing tightness in the concentrate market. Benchmark concentrate treatment and refining charges fell from $60 per dry metric tonne and 6¢ per pound for 2007 to $52 per dry metric tonne and 5.2¢ per pound for contracts negotiated mid-year. Although smelter maintenance shutdowns around year end generated a modest recovery in spot treatment and refining charges, the 2008 annual benchmark posted a further decline to $45 per dry metric tonne and 4.5¢ per pound. Limited growth in mine supply and some further smelting capacity additions mean that the concentrate market is likely to remain tight during 2008.

Outlook

Although the weak economic conditions in the US are likely to continue for much of the year, limiting the potential for demand growth in the Western World, this is again likely to be offset by continuing strong refined copper demand growth in China. This, together with the potential for further supply-side disruptions, mine underperformance and project delays will again provide support to copper prices during 2008.

Changing the drill rod at the Tampakan exploration project, Philippines