World Copper Market Joins Rise in Commodity Prices
SUPPLY AND DEMAND
| NEW YORK
SID GOULD is a plumbing contractor in the Bronx section of New York City. So recent reports of a surge in global demand for copper comes as no surprise to him.
Prices for copper piping used in kitchens, bathrooms, and for other household applications ``have risen 10 percent in just the past few months,'' he says. ``And we expect the price to keep moving upward.''
The increase in copper prices is being noted in many businesses, from small hardware and supply stores to general contractors and even major corporations. Worldwide demand for copper is outstripping supply, says Clarence Morrison, a metals specialist with Prudential Securities Inc. in New York. And rising demand translates into higher prices for individuals and companies.
The run-up in copper prices - now at their highest levels since January 1991 - is only part of a broader upturn in commodity prices. Recently, crude and heating oil, silver, platinum, and nickel also posted gains, helping to spur the Commodity Research Bureau Index of 21 commodities to higher levels. The CRB index is the most closely followed index measuring gains in both hard metals and agricultural commodities.
``The trend line in the CRB index has been up since June of 1993,'' explains Larry Strauss, a commodities specialist with investment house Merrill Lynch & Co. in New York. ``The potential is there for continued, moderate increases in the CRB.'' Mr. Strauss says he sees upward momentum likely in a broad range of commodities, including corn, wheat, soybeans, sugar, cocoa, coffee, and copper.
The CRB index is currently in the 231-point range. The index could reach the 400-point range within the next seven years, according to David Rothberg, director of managed futures accounts at Friedberg Mercantile Group of Toronto, an investment house.
The CRB index is closely monitored by Federal Reserve economists and policymakers as an important early indicator of future inflation.
Indeed, this year's run-up in commodities prices is believed to be one of the primary reasons why the Fed has been so concerned about the likelihood of more inflation in the future - as opposed to at present.
In the case of commodities such as copper, price increases at the wholesale level tend to be passed along to consumers over time, when it is used in such goods as piping, rather than immediately.
One exception is coffee. A freeze in Brazil quickly brought sharp price hikes at the retail level. Coffee, a food product, tends to be sold fairly fast at the grocery store, experts say.
Because of rising industrial usage, total world copper consumption could rise as much as 4.9 percent in 1994 and 3.8 percent in 1995, according to Mr. Morrison. Such an increase in demand would ``outstrip'' expected total global production gains of 2 percent in 1994 and 3.7 percent in 1995. Production will not exceed demand until 1996, he reckons, with a production gain of 3.8 percent compared with a gain in demand of 1.9 percent.
The current sharp run-up in demand for copper is linked to the strong recovery that has been under way in the US, as well as the more recent and gradual recovery taking place in Europe, according to a research associate for Prudential.
Copper tends to be heavily used at the beginning of an economic recovery, as major industrial sectors such as automobile manufacturing gear up for expanded production, the associate says.
Price increases in primary metals such as copper are being reflected in similar price run-ups in the scrap-metals market, he says.
World inventories of copper are now at a five-week supply, Morrison says. He projects that the inventory could fall to a three-week level by early 1996.
Not all economists see a linkage between higher commodity prices and higher consumer inflation, as measured by the Consumer Price Index. ``Higher commodity prices are not always passed along to consumers,'' says Vahid Fathi, a metals experts with Kemper Securities Inc. in New York.
Case-in-point: A contractor with Fred Smith Plumbing Company in New York notes that the price of some copper tubing shot up 40 percent recently. ``But we're not able to pass all of that increase'' along to customers ``because of the recent low level of activity in the construction industry,'' he says.
Mr. Fathi, meanwhile, says he is bullish about pent-up industrial and consumer demand for ``natural resources across the board.'' He is particularly upbeat about future long-range price gains for gold and silver.
However, some analysts caution that speculation may be helping to boost precious metals prices. If that is the case, then current prices could adjust downward as speculators lose interest in commodities.