The
word copper comes from name of the
Mediterranean island Cyprus that was a primary source
of the metal. Dating back more than 10,000 years, copper
is man’s oldest metal. From the Pyramid
of Cheops in Egypt, archeologists have recovered a portion
of a water plumbing system whose copper tubing
was found in serviceable condition after more than 5,000
years.
Copper
is one of the most widely used industrial metals because
it is an excellent conductor of electricity, has strong
corrosion-resistance properties, and is very ductile.
It is also used to produce the two alloys of brass (a
copper-zinc alloy) and bronze (a copper-tin alloy),
both of which are far harder and stronger than the pure
metal. Electrical uses of copper account for about 75%
of total copper usage and building construction is the
single largest market. Copper is biostatic,
meaning that bacteria will not grow on its surface,
and is therefore used in air-conditioning systems, food
processing surfaces, and doorknobs to prevent the spread
of disease. Today the copper content of US coins is
2.6% for the penny, 75% for the nickel, and 91.67% for
the dime, quarter, and half dollar. Known worldwide
resources of copper are estimated at nearly 5.8 trillion
pounds, of which only about 0.7 trillion (12%) have
been mined.
Copper futures
and options are traded on the London Metal Exchange
(LME) and the COMEX Division of the New York Mercantile
Exchange (NYMEX). Copper futures are traded on the Shanghai
Futures Exchange. The Comex copper futures contract
calls for the delivery of 25,000 pounds of Grade 1 electrolyte
copper and is priced in terms of cents per pound.
Prices – Comex
copper futures prices traded sideways in the first half
of 2003 but then staged an impressive rally late in
2003 as the US economy surged. Demand for copper has
a strong correlation with US economic growth and with
the US building industry. Copper prices were also boosted
by the weakness in the dollar. Copper prices closed
2003 at a 6-1/2 year high of .04 per pound. That is,
however, still well below the 13-year high on the copper
nearest-futures chart of .46 posted in July 1995 and
the record high of .65 posted in December 1988.
Supply – World
production of copper in 2001, the latest reporting year,
rose by 3.8% to 13.700 million metric tons from 13.200
million in 2000. The world’s largest producer
of copper is Chile with 34.6% of world production, followed
by the US with 9.8%, Indonesia with 7.7%, and Australia
with 6.3%. US production of refined copper in 2003 was
on track to fall to 1.3 million tons from 1.508 million
in 2002.
Demand – US consumption
of copper in 2001 fell to 2.620 million metric tons
from 3.030 million in 2000. The primary consumer of
copper in the US is wire rod mills with 74% of usage,
followed by brass mills with 24% of usage.
Trade – US exports
of copper in 2003 were set to rebound sharply higher
from the depressed levels of 22,500 metric tons in 2001
and 26,600 metric tons in 2002. US imports of copper
in 2003 were set to fall slightly from 927,000 metric
tons in 2002.
On November 29, 2005, the
International Copper Study Group (ICSG) said that, through
the first eight months of 2005, world copper demand
exceeded production by 114,000 tons with demand down
2% from a year ago and production up 4% from a year
ago. On November 16th, the ICSG had said that they expect
a world production deficit of 122,000 tons for all of
2005. So far, the big increases in demand have been
coming from China and India. In 2004, world copper consumption
exceeded production by 843,000 tons, up from a production
deficit of 408,000 tons in 2003. For 2006, the ICSG
is predicting that world production will total roughly
17.8 million tons and refined use will total 17.4 million
tons, resulting in a production surplus of 295,000 tons.
The bearish threat to this
market usually comes from Chile where the bulk of the
world's copper is produced and expansion plans continue.
However, on November 10, 2005, Chile's copper commission
said that they will only produce 5.37 million tons in
2005, down from 5.41 million tons in 2004. In the first
seven month's of 2005, the significant increases in
copper production were coming from Australia, Brazil,
Indonesia, and the U.S. London inventories of copper
started 2005 at 49,375 tons and ended at 89,575 tons.
However, the supply-demand
balance is expected to loosen over the next year, as
the prevailing high prices elicit increased production
and prompt consumers to curtail demand. While prices
are projected to decline in this environment, still-low
inventories should support copper at fairly high levels
through 2006.
BMO Financial Group's
Commodity Price Report. November 15, 2005.
The metal, used to make
electrical wiring and plumbing, will average $1.15 a
pound, or $2,535 a metric ton, next year compared with
$1.62, or $3,571 a ton, in 2005, said John H. Hill,
a San Francisco-based analyst at Citigroup. Copper for
delivery in three months on the London Metal Exchange
closed at $3,904 a ton yesterday.
"Easing smelter
bottlenecks combined with increasing mine supply are
likely to take copper prices sharply lower," Hill,
42, said in an Oct. 24 report.
Bloomberg news. October
28, 2005.
John Meyer of Numis Securities
said: "We are conscious of increasing demand for
copper in automotive applications where the average
auto contains 27.6kg of copper. The dramatic rise in
popularity of hybrid cars which incorporate electric
motors in conjunction with combustion engines could
lead to a substantial increases in copper demand in
this area. We estimate that a typical electric hybrid
could use around 2 times the current usage of copper
in additional cabling and windings for electric motors."
Financial
Times. October 19, 2005.
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