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Copper Prices: Little Relief in Sight

The cost of copper continues to burden OEMs and other copper buyers. And, as interest rates creep up, the cost of holding high-prices copper inventory escalates also. That ratchets up financial stress even more.

So where is copper headed? Copper prices have receded from their April, 2006 peak of over $4.00 per pound, but they are still in ranges that are historical highs, spurred on by fund buying and low stock levels.

Mainstream investors are impacting prices
Recent high copper prices have attracted investments by "The Funds" that have a significant influence on metal prices. Capital invested in commodity index funds surpassed $50 billion in 2005 and is likely to exceed $100 billion by 2010.

Globally, inventories are still short
Inventories have crept back up to around 190,000 tons, their highest levels since June of 2004. For perspective though, remember that in 2002 inventories ranged around one million tons and coper was about 80 cents per pound.

The recent inventory growth and attendant decrease in price are connected with declining demand for copper products.
First, copper wire and tubing use:
- the major consumers of copper
- has slowed as the housing market has softned.

Second, high copper prices make other materials more competitive. Residential plumbing can shift from copper to PVC. Wire and cable production, which accounts for about 65 percent of copper consumption, can move toward aluminum conductor, especially in larger sizes. But prices for alternative materials are climbing also, so the substitution threshold keeps rising.

Increase supply still years away
Can't we just mine more copper?
Yes, eventually. Current facilities are already at full capacity. New copper production takes five to eight years to come on line, from exploration to production. Even projects that have been started in the last few years are still at least two years from producing significant tonnage. More copper is on the way, but don't expect the squeeze to end any time soon.