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Has Copper Bull Stopped Running? Experts Disagree

January 23, 1988

Undated (AP) _ A bull can’t run forever, and some analysts say the past week’s sharp drop in copper futures prices signals an end to one of the most dramatic runups in recent memory.

But other experts say the bull is just taking a breather during a brief lull in the supply-and-demand crosswinds that drove U.S. copper futures to an year-ending, all-time high of $1.46 a pound, more than double the mid-year price.

Those analysts say copper supplies and production will fall short of demand, forcing prices as high as $2 a pound later this year.

The debate stems from a selloff of copper futures that began on the first trading day of the new year and saw steep drops in the active March contract of 8.30 cents a pound on Jan. 13 and 8.80 cents last Wednesday.

The contract for March delivery settled Friday at $1.0810 a pound.

William O’Neill, research director for Elders Futures Inc. in New York, said most copper users apparently bought enough of the metal at the end of 1987 to make it through the first quarter of 1988.

Under that scenario, the break in demand while production continues unabated would result in a buildup of warehouse inventories held by New York’s Commodity Exchange and the London Metal Exchange, the world’s major copper futures exchanges.

″The pressure is on the market now,″ O’Neill said. ″Stock levels in London and New York, which had been steadily declining, are leveling off.″

O’Neill said the diminishing gap in price between the March and May contracts - 10 cents at the Comex on Friday compared to 13 cents a week earlier - ″is an indication the supply tightness has probably run its course.″

Stephen Briggs, a London-based analyst for Shearson-Lehman Brothers Inc., basically agreed with that forecast.

Briggs, writing in Shearson’s ″Outlook ’88″ report, said copper output should rise more than 5 percent in the coming year while consumption levels off or declines.

″While copper is likely to be volatile in the early part of the year, we believe that sustained price weakness will emerge in the second quarter,″ Briggs wrote. ″Our forecast is that Comex copper will average around 80-85 cents a pound in 1988.″

In contrast to Briggs, whose forecast is based on expectations of a global economic slowdown, the other side of the debate is rooted in the idea that the world economy will continue to expand in 1988.

That’s the view taken by Frederick Demler, New York-based metals economist for Drexel Burnham Lambert Inc., who also pointed out that copper stockpiles at are still extremely low.

″Copper inventories are at a 30-year low, and we’re reaching a period of the year where demand for copper is strong,″ Demler said. ″Everything seems to be falling in line for another shortage developing.″

Noting that past copper bull markets have been marked by a sharp dip near the mid-point of their run, Demler said Comex copper futures could fall as low as 95 cents in the next two or three weeks. But after that, watch out.

″I think we’ll see a test of $1.45, possibly $1.75 in another two to three months,″ he said.

Even more bullish was William Murphy, president of Trading Resources Inc. in New York, who said current production problems in Chile will exacerbate the problem of tight supplies.

″We think the situation is explosive,″ Murphy said. ″We’re still looking for $2 copper by Memorial Day. We think it’ll be one of the greatest squeezes in history.″

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