Copper, Gives Lessons on Economy

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06/14 06:35 Copper, the `Metal With a Ph.D.', Gives Lessons on Economy By Will Edwards

Atlanta, June 14 (Bloomberg) -- Primo Levi, the Italian writer and chemist, described copper in human terms, calling it ``easy and direct, incapable of concealment.''

The metal speaks just as plainly, if far less poetically, about the U.S. economy. Since copper finds its way into automobiles, appliances, homes and even computer chips, to mention just a few uses, its price movements give signs where the economy is headed.

``There are a bunch of us who refer to copper as the metal with a Ph.D.,'' said Brian Wesbury, chief economist at Griffin, Kubik, Stephens & Thompson in Chicago.

With the futures price of copper at less than 73 cents a pound yesterday, the lowest since June 1999, Wesbury and other analysts have concluded that a rebound in economic growth lies at least six months ahead.

Ford Motor Co.'s production cut of 10 percent, or 110,000 vehicles, in the third quarter from a year earlier eliminates the need for about 6 million pounds of copper, based on metals industry estimates that each car uses 55 pounds. Each Hoover vacuum that Maytag Corp. doesn't make keeps at least a pound of copper off the market.

As a result of copper prices that have fallen almost 10 percent from a year ago, mines are trimming payrolls or putting a halt to growth plans.

Phelps Dodge Corp., North America's largest copper producer, said last month it will eliminate about 80 jobs at a New Mexico mine and may cut another 1,065 jobs in the state. The Phoenix- based company had already slashed its dividend by 75 percent and announced that it expected its second straight quarterly loss.

Stockpiles Build

A $600 million planned expansion at the Collahuasi copper mine in Chile, the world's largest mine producer, was put on hold until year end. The mine, owned by a group led by Japan's Mitsui & Co. Ltd., Falconbridge Ltd. and Anglo American Plc, produced 3.3 percent of the world's copper ore last year.

``Demand has fallen so much that we can't get a leg up on prices,'' Wesbury said.

Copper sheets known as cathode are piling up in warehouses monitored by the Comex division of the New York Mercantile Exchange. Inventories have more than doubled this year to a record 160,648 short tons, compared with 65,593 tons at the start of this year.

The sheets, as large as 4 feet by 4 feet, can be found in storage in such places as New Orleans, where they enter the U.S. from Latin America, or in San Manuel, Arizona, near U.S. refineries.

Inventories haven't seen much relief from hedging activity, analysts said. As opposed to the 1994 rally, hedge funds are placing fewer bets this time around that copper will rebound, according to George Cheveley, research manager at CRU International, a copper research firm in London.

Other Metals

Economists give attention to other metals as well.

Aluminum, a favorite among forecasters, is used in aircraft and beverage cans. Nickel, which yesterday fell to its lowest price in more than a month, goes into batteries and corrosion resistant metals. Zinc has similar functions.

Yet none of them equal copper for pure variety as a material in the production of goods, economists say, and the U.S. accounts for one-quarter of world copper use.

Besides autos and appliances, copper can be found in airplanes, pipes and wires.

``Copper is used in practically every industrial application,'' said Frederick Demler, an analyst at ED&F Man Group in New York. ``That's what makes it so significant.''

Copper prices can predict some trends, or ratify other economic data.

A Leading Indicator

A rise could foreshadow an increase in demand for products such as cars, appliances or cookware, Cheveley said. Buyers order copper weeks or months in advance of actual need, meaning its price can also give a clue to what the government will report on factory orders or industrial production.

Since orders for copper used in construction may follow reported statistics such as housing starts, demand for copper among builders could then confirm past or present trends, Cheveley said. Each 2,100-square-foot house uses about 440 pounds of copper.

Either way, new products mean copper may remain a sound measure of the economy. Hybrid vehicles that rely more on electric power will use more wire and batteries. Houses that are wired for computers in every room should also raise demand, industry officials say.

International Business Machines Corp. announced a year ago that it would manufacture copper versions of Compaq Computer Corp.'s Alpha microprocessors. Copper wiring and the silicon-on- insulator method count among the recent breakthroughs in chipmaking.

``Copper is one of the commodities that bridge the gap between the old and new economies,'' Wesbury said.



-- Guy Daley (guydaley1@netzero.net), June 14, 2001

Answers

Hmmmm, another datapoint. Wallboard, copper...I think I see a trend here.

-- Andre Weltman (aweltman@state.pa.us), June 14, 2001.

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