Prices slip to $115 per tonne in May

IN FOCUS/ COPPER

Copper cash prices on the London Metal Exchange (LME) have averaged at $3,278 per tonne so far this month, down by over $115 per tonne from April and looking to post the first monthly decline since June 2004, according to a report by the London-based GFMS Metals Consulting.

Prices are still at higher levels, however, owing to the low inventory position, which is supporting prices from corrections to the level seen in aluminium and zinc.

While the fundamental position in the copper market remains strong, as refined increases have not yet reached the market significantly to reverse the inventory decline, speculative long positions have continued to diminish.

LME copper stocks stood at 54,175 tonne as on May 16, down by 6,825 tonne since the beginning of the month although still 4,000 tonne above the average year-to-date level.

Latest data reveals that net long futures and options positions are down by 11,975 contracts since recent price peaks on April 12 to stand at 17,558 contracts as of May 10.

The downturn in sentiment is indicative of the International Copper Study Group (ICSG) bulletin earlier in the month showing that consumption was weak in the first two months of the year "" down by 5.4 per cent year-on-year.

The market consensus points to the fact that refined supply will increase in the second half of the year preventing further price peaks.

The report also states that mid-year treatment and refining charges (TC/RC) contract negotiations are expected to average around $120/tonne, reflective of the surplus in concentrates.

ICSG numbers showed an 8.1 per cent boost to world mine production in the January-February year-on-year period after an increase of 6.2 per cent in 2004. This is in comparison to primary refined growth of only 2.6 per cent in 2004 and 5 per cent year-on-year for January-February 2005.

However, a deficit in the refined copper market this year is forecasted moving to a surplus position by the fourth quarter and leaving the whole of 2006 with a western world market surplus of 169,000 tonne.

China continues to import large amounts of copper and concentrate, encouraged by the LME and Shanghai Futures Exchange (SHFE) price differential.

Meanwhile in Europe, falling growth rates have seen well-stocked consumers stay away from the spot market and premium levels have begun to come under further pressure after a picking up in early May.