TMR 3.13% 16.5¢ tempus resources ltd

copper set take off

  1. 252 Posts.
    Extract from Credit Suisse Market Commentary (8th February)

    -As the global recession appears to unfold, copper prices have rallied significantly this week. This may be explained by the ongoing supply shortages in the industry and limited stockpiles held by consumers who appear to be operating hand to mouth. We think copper prices now have the potential to hit $12,000 per tonne.

    -Looking through the current US recession, if the central banks can stimulate the economies, 2009 could see global copper demand re-accelerate to +5-6%. With supply growth of only 3.3% this could set the scene for a significant spike in prices.

    -We estimate that at least 700,000 tonnes of copper supply will slip between 2008-12. We are downgrading our 2008 supply estimate from 2.3% to 1.9% and our 2009 estimate from 3.6% to 3.3%.

    -This is hardly the environment for significant copper price weakness unless we see a major economic recession. If this turns out to be true, then we believe our copper shares are trading at the wrong price and deserve a significant re-rating.

    -The longer the copper price can stay strong and actually rally in the current US recession, the more likely prices are going to spike higher when growth re-accelerates. We have visited over 100 investors in the last four weeks and their biggest surprise appears to be the ongoing strength in commodity prices amidst the doom and gloom in the equity markets. Are the commodity markets telegraphing a completely different story on global growth that has yet to be reconciled by the equity markets? We think so, and believe commodity markets are a better indicator of global growth than equity markets.

    -If we are entering a recession, then let’s take a look at the worst case outcome for copper prices. Our worst case scenario assumes that copper demand from BRIC countries grows by only 5% in 2008 compared to 9% in 2007, whilst ROW
    demand falls to a negative 1% compared to estimated 1.8% growth in 2007. Under this scenario, our revised global supply growth of 1.9% would be more than global demand of 0.9%. In this scenario the market is likely to move into a surplus by some 185,000 tonnes which may push copper prices to a low of $2.60 per pound. We think prices won’t fall much further than this due to the limited inventories held at both the exchanges and amongst consumers in the US, Europe and China. If $2.60 per pound is a worst case scenario in a global recession then we will take that anytime.

    - If copper demand does grow by 0.9% (worst case) in 2008 and 6% in 2009, the supply would still fall short of demand in 2009 leading to a copper market deficit of 319,000 tonnes. This would again set the scene for a spike in prices to as much as $4.50 per pound. This compares with our current 2009 copper forecast of $3.00 per pound.

    - If the copper demand could grow by 1.6% (mild recession) in 2008 and 6% in 2009, the market would be in a deficit of 577,000 tonnes, which would set the scene for a price of as much as $5.00 per pound. Under the third scenario, we have assumed that copper demand would grow by 2.9% (base case) in 2008 and 6% in 2009. This scenario would leave the market in a massive deficit of 710,000 tonnes. Such a deficit could spike prices to over $6.00 per pound.
 
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