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May 23, 2012 ||
Harriet Hunnable ||
Last week I was in Arizona at the International Wrought Copper Council and American Copper Council, where I met many companies involved in mining and the fabrication of copper products. Companies from 24 countries, from as far afield as China, Japan, Chile and Italy attended the event discussing the challenges and opportunities ahead for the industry.
Arizona is called the copper state, and for good reason. More than 60 percent of U.S. copper production is mined there, and the industry provides over 73,000 jobs to the state.
With other attendees, I went on a site visit to Freeport-McMoRan Copper & Gold Inc.’s Miami mine. We were suited and booted with safety helmets before we set off. We saw the impressive land reclamation project at the start of our visit, and then went to the top of the open-pit copper mine. Looking into the 1.8 miles deep open pit, the giant excavators and dump truck seemed as small as matchbox toys. One of the other women from a Polish copper mine helped me find a souvenir in the dirt, a small rock, bright emerald green with copper. We went onto to see the smelter, where the copper concentrate is turned into anodes. From a safe distance we saw the orange heat and green flames from the molten copper before it was cast into anodes- large slabs of 99.9% copper. It was fascinating to witness the process of this metal that has such a significant role in the world’s economy.
The most exciting part of the conference for me was sitting down to meet with refineries and warehouse operators who support our COMEX copper business and are active users of our futures contract. But without a doubt, the main focus at each of the meetings was on China, China and China.
Copper is traditionally a strong indicator of economic activity, and responds to global economic outlook, because it is used everywhere. It is an essential building material in plumbing, telecommunications systems, roofing, and all kinds of new technology. Therefore, China’s economic growth and building boom in recent years has meant huge demand for copper, to the point that the country was consuming nearly 40 percent of the world’s supply.
But as we discussed at the conference, China is slowing down, and that could mean a shift in supply and demand fundamentals for copper. Add to that concerns over Greece leaving the Eurozone, and you can start to see why the price of COMEX copper has dropped nearly 9 percent in May.
But we could see the situation reverse on China’s outlook. The building boom, and the increased private development that has allowed it to happen, may not be over. As the Wall Street Journal reported this week:
Copper futures caught an overnight boost from Chinese Premier Wen Jiabao’s comments that Beijing would “stabilize” property-market regulations. The comments, reported by state media, were a departure from Wen’s previous line that the country would stick to the property-tightening measures “unswervingly.”
That the copper market is sensitive to such statements is a clear reminder why managing copper risk is at a premium in today’s economy, especially for those who attended last week’s conferences.
I enjoyed the opportunity to speak at the IWCC and ACC meetings in Arizona. As we move forward with helping industries manage their risk, I am pleased with the feedback we received from industry participants around the world and how they use our products.
The news this month, and the market performance of the metal, is a reminder that shifting supply and demand for copper, and the metal’s sensitivity to global economic events make it a market to watch as we’re constantly reassessing the global economic outlook.
Harriet Hunnable is managing director of metals products at CME Group.
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