Rapid Graffiti

Copper prices at the current level of USD 7,980.00 per Mt for cash buyer and USD 7,870 for 3-months buyer settlement are certainly unsustainable.  The highest price recorded on 12^th to 14^th May, which is also the highest for the metal in its history of existence, was USD 8,600 per Mt.  There are a lot of factors that affect the copper prices.  Some of them are as follows:

• There is a drawn-out strike in the La Caridad mine of
  Mexico.  This mine produces 140,000 tons of copper concentrates per year.  If the strike continues for a longer time, the production will come down, which would reduce the supply and hence might increase the price further.  Similar strikes are going on in Chile and
  Papua New Guinea in some mines over different issues.   
• 21 of the 28 largest copper mines are NOT amendable to expansion.  Many large copper mines will be exhausted in 2010-2015
• Chile is facing shortage of water.  This is affecting copper production through slower mine expansion
• Mines are focusing on ore grades that have higher value by-products, such as molybdenum, for which prices are rising faster than copper.  This might again reduce the supply of copper.
• China, one of the biggest consumers of copper, is growing at a rate of almost 10%.  Its growth is largely dependent of manufacturing industries, and copper is key element used in manufacturing.
• China, along with Korea and
  Thailand, is also considered as the base for manufacturing of HVAC (Heat, Ventilation, and Air Condition) Industries.  Many HVAC players like Voltas, Fedders, SANYO, Hitachi, Lg, Samsuang, National, and Electrolux have their manufacturing base of copper tubes in China, which ultimately increases demand of copper in
  China.
• Pension funds managers saw commodities as a ripe option to invest.  Historically, the returns were really good.  On 12^th March this year, the price was around USD 5,000 per Mt, while on 12^th May this year, it was USD 8,600 per Mt.  This means a return of 72% in less than 72 days, which I believe is really amazing.  Of course I’ve selected the period with highest returns, but this is just an example of how spectacular commodities can be.
• Hence, the investment and speculation grew in the copper market which resulted in rising copper price.
• Fed raised interest rates again on 10^th May, 2006.  This was the 16^th straight interest rate hike, and now the rate stands at 5%.  Further hikes may be expected when the Fed meeting takes place on June 28-29, 2006.   
• Whenever the Fed raises the interest rates, the dollar becomes strong, although for temporary period in some cases.  This is because of capital inflows corresponding to interest rates hikes.  The LME prices are quoted in USD.  So if USD appreciates, investors of other countries face a probable loss due to USD appreciation.
• Japan also showed signs that it might raise the interest rates.  Speculators who have borrowed from
  Japan, and have invested in commodities market started exiting due to these signs.

The above factors have brought down the copper prices to a certain extent.  Still the prices are unpredictable.

My job at Blue Star is price risk management.  I’m basically working on the hedge ratio to cut cost of procurement in long run.  When I interviewed, I was told that the project is all about international marketing. 

Nevertheless, Global sourcing seems to be really interesting.  My previous experience in e-procurement with Tendercity.com has really helped me. 

I’m looking forward to more action in the next 10 days.