Copper on Track to Erase Post Recession Gains

By Leia Michele Toovey- Exclusive toCopper Investing News

If copper continues down the same path, by week’s end the industrial metal may hit values not seen since the recession. Copper opened Tuesday’s session with volatility, swinging between gains and losses in line with the greenback. By mid-day trading, the red metal had a little relief, rising to touch $6,174 per tonne on the LME, $2.80 per pound on the COMEX. This rally, however, is not enough to overshadow the metal’s recent collapse.  Copper prices plummeted on Monday, dropping as far as $2.72 a pound, its lowest level since October.

The metal’s precipitous drop is a result of mounting debt concerns in the euro-zone and fears that economic growth across the world is slowing. Monday marked the sixth straight day that copper declined.  Total losses in the stretch accumulated to 12.4 percent of the metal’s value. Copper, often given the nickname “the bellweather for economic growth” is reacting swiftly to fears that Europe’s recession has yet to see the worst. If these fears fail to subside, analysts predict that the metal may see recession values of $2.50 per pound by week’s end.

Copper industry execs are holding that the market is still backed by strong fundamentals. According to Freeport McMoran Copper and Gold (NYSE:FCX) Senior Vice President of marketing and sales Javier Targhetta “the copper concentrate market will have a shortfall for three years after miners delayed projects because of lower prices.”  Targhetta claims that the deficit will be between 500,000 metric tonnes and 1 million tonnes this year, and will remain tight for at least the next three years. Mining companies delayed or scrapped new projects after copper prices plunged a record 54 percent in London in 2008, crimping future supply.

According to Ricardo Alvarez Fuentes, general manager of the El Teniente division of Codelco, the world’s largest copper producer, global copper demand may double in 15 years to hit 36 million metric tonnes. Demand may grow by as much as 4 percent this year, and rise to 4.7 percent in 2014. The average annual growth from 1960 to 2009 was 2.7 percent.

Company News

Grupo Mexico has regained control of its Cananea mine, after protesting workers forced the company to close the mine 3 years ago.  The mine, Mexico’s biggest copper mine, once produced 40 percent of Mexico’s copper. Grupo Mexico estimated it had suffered $1.5 billion in losses because of the strike, which also has held up a $3 billion expansion project that would more than double Cananea’s capacity to 460,000 tonnes a year from 190,000. Grupo Mexico regained control after hundreds of police officers dislodged the striking workers. The government ordered the takeover after a court ruled earlier this year that striking workers could be fired. No one was reported injured as the police came in quickly, surprising the striking workers. The raid enraged the national miners’ union, which called on the government to recall the police. A spokesman said the union was deciding what its next step will be.

Grupo Mexico said it is beginning to evaluate damage to machines and equipment at the mine after years of disuse.”As soon as possible rehabilitation and reconstruction work will begin at Cananea.” A Grupo Mexico executive said the mine could be running by the end of the year, the union said state police had also raided the Pasta de Conchos coal mine in the northern state of Coahuila, where a massive explosion in 2006 killed 65 workers. Another $2 billion investment at Grupo Mexico’s El Arco project in Baja California has been stalled due to uncertainty caused by the strike, since Cananea has industrial facilities that process copper mined at other sites. El Arco was expected to start production in 2012 with a capacity to produce 190,000 tonnes of copper. The two projects, if built, would turn Mexico into the world’s No. 2 copper producer.

With help from Assistant Editor Vivien Diniz