What determines the price of Copper?
Both in the long and short term copper prices are determined by the fundamentals of supply and demand or the number of buyers and sellers at a given time.
A number of factors influence supply and demand such the expected amount of copper to be made available by mine producers and recyclers, the amount of world wide copper inventory on hand and the expected demand or buyers in the market. These buyers are both end users of copper metal and speculators.
Copper prices have historically been both cyclical and volatile, trading within a range of U.S.$0.50-U.S.$1.60 per pound through the 1980s and 1990s followed by a period of higher prices from 2005 onwards of U. S. $ 2.00 to $ 4.00 per pound largely due the surge of world consumption, particularly in China. The copper price was volatile during 2008, with the spot price ranging from a low of $1.26 per pound to a high of $4.07 per pound. At March 18, 2009, the closing spot price was $1.70 per pound.
Despite the recent sharp price declines, the Company believes that the copper market will recover and will have better fundamentals than the market for other base metals. The reasons why the Company believes that copper prices will perform better than other base metals include:
• Lack of Chinese Copper Resources. The Company believes the global copper market will benefit from increasing demand for copper in China. China only has limited internal reserves and production capacity. China produces only 7% of global copper production, while consuming 28% of global refined copper production.
• Worldwide Copper Supply Affected by Geopolitical Risks. The worldwide copper supply will continue to be subject to geopolitical risks as a large portion of future production growth is expected to come from regions which are subject to high political risk.
• Existing Producers Struggle to Maintain Production. The worldwide mined copper grade has been decreasing and this trend likely will continue because most mines experience declining ore grades in the normal course of production. In recent years, copper supply has been hampered by other disruptions. This resulted in a production shortfall of between 800,000 and 1,400,000 tonnes of copper in 2008.
• No New Technologies. The Company is not aware of any new technologies that would significantly increase copper supply.
• New Supply Growth Has Not Met Expectations. The copper supply has not grown to follow demand and supply growth has not met predictions. A primary cause has been that new copper project developments have not met their original timetable due to difficulties in securing adequate financing and the inability of sponsors to adequately source key resources, including equipment and quality technical personnel. The current global economic and financial outlook has also contributed to the delays in the development of projects
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