Expect a worldwide deficit of about 500,000 tons of copper this year, according to The Australian. The looming threat of a supply crunch has helped push copper prices to a record levels above $10,000 per ton.
Major copper mining companies have benefited handsomely from the surge in prices. Xstrata PLC (PINK:XSRAF), one of the world’s top four biggest mining companies, saw its revenue rise by 34 percent last year on the strength of rising commodity prices, the company reported Tuesday. Profits jumped 700 percent after earnings were impacted by restructuring in 2009. Analysts expect copper and iron ore miner Anglo American PLC (PINK:AAUKY), which will announce its full-year earnings on Feb. 18, to show equally impressive numbers with Thomson Reuters calling for a 100 percent increase in profits in 2010.
Still, some writers have cautioned that copper’s price gains aren’t so much a result of incredible demand as they are the product of shrinking supply. That could lead traders to get too bullish on commodities since copper’s price movements are lauded for deducing the world’s economic health. The red metal’s supposedly so good at indicating the health of economies that its even got its own nickname: Dr. Copper.
“Even if global economic growth was modest, copper prices would be high, as we saw in late 2009 and early 2010,” writes Javier Blas at FT.com. Indeed, copper output at the world’s largest listed copper miner Freeport-McMoRan Copper & Gold Inc. (NYSE:FCX) fell 5 percent last year and Xstrata cautions that onerous regulation and a lack of skilled labor and engineers is making copper production increasingly difficult.
The net result? High copper prices are here to stay, and this year’s 500,000 ton shortfall might not look so bad compared to what’s coming in the future.
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Tags: AAUKY, copper, copper mining, FCX, XSRAF
