Chile crisis powers copper's rise

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    http://www.theaustralian.news.com.au/story/0,25197,23519658-643,00.html

    Chile crisis powers copper's rise

    Kevin Andrusiak in Santiago | April 11, 2008

    THE copper price is predicted to continue rising after breaking through the $US4/lb mark for the first time as the Chile power crisis deepens.

    Chile's domestic users are bracing for possible cuts to their supply because a drought has caused dams feeding hydro-electric generators to run critically low and Argentina continues to deny the country gas supplies.

    Chile produces about 40 per cent of the world's copper and the power crisis is threatening production of the base metal at a time of insatiable demand, from China in particular.

    Analysts at the World Copper Conference in Santiago said there was no immediate end in sight to the current short-term bull run in the spot copper price.

    Goldman Sachs analysts in New York predict the price of copper will continue at about $US9000/tonne ($US4.10/lb) for the rest of 2008 before climbing to $US10,000/tonne ($US4.54/lb) next year.

    But in the wake of Chile's power shortage, many in the industry are revising their figures, with the spot price gaining about 30 per cent this year.

    Credit Suisse expects copper to reach $US12,000/tonne or $US5.44/lb this year. Nedbank mining and resources financier Sanjey Bhoowanpursadh said copper prices were likely to remain high.

    He said global copper demand would continue to grow by 3.7 per cent a year to reach 27 million tonnes by 2018.

    But worldwide copper production would only increase to 18.4 million tonnes by 2010 and then weaken.

    "Beyond 2010, it will shrink by 2.9 per cent as mines close," Mr Bhoowanpursadh said.

    "The net result is a burgeoning gap in the market."

    Oxiana managing director Owen Hegarty said that although the spot price would remain high, the industry was being plagued by capital cost increases that would ruin the chances of many smaller explorers getting into production.

    Cost blowouts for bringing new copper mines on-stream have already blown out by an average of 75 per cent. "Demand is the perfect storm but supply is the perfect nightmare," Mr Hegarty said.

    "The changing demand for copper isn't dependent on the US economy. At what price copper drops off, I don't know."

    Bloomberg energy, shipping and commodity markets business manager Josh Eastright told World Copper Conference delegates that the tricky market conditions for copper had divided opinions about the future of the copper price.

    "Copper has room to run," Mr Eastright said.

    "The experts don't seem to agree on where we are heading. If you had the same scenario in the bond market, it would be chaos.

    "I don't see the speculators driving the market. There is no outright appearance that manipulation is going on."

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