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copper should continue to rise

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    CORRECTED - Phelps Dodge sees 500,000-T copper deficit in 2004
    3/23/2004 3:17:59 PM

    NEW YORK, March 23 (Reuters) - Phelps Dodge Corp. (PD) , the world's largest publicly traded copper producer, said Tuesday it expects the world copper market will hit a deficit of about 500,000 tonnes by the end of 2004 due to still-strong Chinese demand and an improving global economy.

    Phelps Dodge executives said in a presentation to analysts that the current supply shortfall also is "very notable," with availability representing just two weeks of consumption.

    Below five weeks of supply is considered an extremely tight copper market, said Art Miele, senior vice president of marketing for Phoenix-based Phelps Dodge.

    He forecast that the copper market's available supply in the first half would stay below five weeks of consumption.

    "The first quarter is proving to be stronger than we had anticipated," Miele said. "We're seeing global economic recovery and we think it's sustainable."

    World exchange inventories of high-grade copper cathode are hovering at just above 500,000 tonnes currently -- one-third of the 1.5-million-tonne peak reached in April 2002, said Miele.

    Steadily dwindling refined copper inventories, supply disruptions and voracious demand from China earlier this year combined to boost copper prices to 8-1/4-year highs.

    Futures in New York on Tuesday closed at $1.3590 a lb, sharply above the 65 cents copper was fetching in late 2002 and almost nickel below the March 2 peak at $1.4030.

    Miele said the market's upturn appears similar to a cycle from the late 1980s, particularly the fourth quarter of 1987, when prices neared $1.30 a lb as supply availability fell below the five-week level.

    Supplies of copper scrap and copper concentrate also remain tight, Miele said.

    Phelps Dodge did not offer a fresh copper price forecast on Tuesday, but in January Miele said he was forecasting an average 2004 copper price at or above $1.10 a lb.

    "China we want to continue to watch carefully, and we also want to watch for unexpected supply disruptions," Miele said.

    China has led demand for copper, he said, consuming roughly 3 million tonnes last year. But this year Miele is looking for Chinese growth to be down to 9 percent from last year's 20 percent.

    Miele also said Phelps Dodge sees 2004 global copper consumption growth of at least 4 percent.

    Prices of molybdenum, a by-product of copper production, have risen to about $10 per lb, Miele said, from $8 a month ago and historical values of around $4. He projected that moly would average $8 to $10 in the first half of 2004.

    "Moly prices today are up dramatically in the last month, and we have a situation where demand is starting to grow. Production levels have yet to catch up, and the inventory overhang has been absorbed," Miele said.

    © Reuters 2004. All rights reserved. Republication or redistribution of Reuters content, including by caching, framing or similar means, is expressly prohibited without the prior written consent of Reuters. Reuters and the Reuters sphere logo are registered trademarks and trademarks of the Reuters group of companies around the world.

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