Copper Stocks Stumble as Manufacturers Search for Cheap Alternatives
14 April 2011 - 2:16PM
Marketwired
Copper prices have taken a noticeable hit this week as concerns
about high commodity prices and risks to the Chinese and Japanese
economies has weakened the demand outlook. Copper prices are
sensitive to the market's economic outlook as the red metal is used
to make wire, pipe, buildings, automobiles and appliances. The
Bedford Report examines the outlook for companies in the Copper
Industry and provides research reports on Taseko Mines Ltd. (NYSE
Amex: TGB) and Freeport-McMoRan Copper & Gold, Inc. (NYSE:
FCX). Access to the full company reports can be found at:
www.bedfordreport.com/2011-04-TGB
www.bedfordreport.com/2011-04-FCX
Copper's spike in price this year is leading a switch among
manufacturers to aluminum as it is cheaper and also able to conduct
electricity. Chris Burns, North American engineering director with
US automotive parts supplier Delphi, explains that "with copper
being at historic levels, there has been global interest in going
to aluminum cables in cars." Currently the difference between the
prices of copper and aluminum is enough to pay for the extra
aluminum it takes to conduct the same amount of electricity as
copper as well as cover the costs of retooling some manufacturing
processes.
Aluminum Industry kingpin, Alcoa, estimates that if copper
prices keep rising, aluminum could end up being substituted for 20
percent of the global 19 million metric ton annual refined copper
market.
The Bedford Report releases regular market updates on the copper
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Concerns that copper's price may have finally peaked has led to
the possibility that hedging may soon return. John Meyer, an
analyst at investment bank Fairfax, argues that "Copper hedging at
these high levels gives companies security. Also if you are
borrowing from banks, then hedging is often one of the conditions."
Hedging programs allow producers to lock in current copper prices
for future production, guarding against any potential price
declines in the future.
Richard Adkerson, president and chief executive of
Freeport-McMoRan Copper & Gold, said, "We have not hedged
copper prices, and as a result we -- with a couple of minor
exceptions -- have not hedged any other costs as well."
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