Luvata Speaks out about “Artificially High” Copper Prices

Investment funds are causing artificially high prices and volatility in the copper market, according to leading metals expert

(25 March 2010) Luvata, the global metals and manufacturing specialist, is calling for measures to be imposed to curb artificial spikes and volatility in the price of copper. In front of an audience of senior industry figures, a spokesperson for the company said the imposition of higher initial margin requirements would protect the stability of the price from the activities of commodities trading by investment funds.

On behalf of the Copper and Brass Fabricators Council, Inc., Jeff Burghardt, Vice­President for North American Procurement and Global Utilities for Luvata, delivered compelling testimony before the Commodity Futures Trading Commission (CTFC) calling for changes to limit the unprecedented volatility and prices that have been seen in the copper market.

“In the last years, the price of copper has increased over 100% while, at the same time, the quantity of material stored in warehouses has also increased substantially,” states Jeff Burghardt.

“While the copper market was in a surplus, the price more than doubled. This clearly suggests a disconnect between fundamentals and price.  Although commodity markets were established to be the benchmarks for establishing prices for the underlying commodity, today it seems as though they have become primarily investment vehicles, with prices often having little correlation to costs or fundamentals.”

“We believe that if investment funds were to have smaller positions in the markets, it would greatly reduce the volatility and bring prices more in line with fundamentals and costs.  These results would be beneficial to our industry, our customers and the economy in general,” states Burghardt.

“Although Luvata is a staunch advocate of the CTFC looking to limit the impact of investment funds in the commodity market, we believe that increasing initial margin amounts charged to investment funds will be a more effective solution to the problem. We would not want to see position limits put on hedgers or see the initial margin changed for this group either. Futures markets are critical for us to use in establishing prices and being able to manage the price risk in our business. We use futures markets as necessary in our day­to­day business to hedge our price risk and is it critical we can do this in a cost­-effective manner,” explains Burghardt.

Over the last few years the record high prices and volatility of the markets have caused major challenges for the copper industry, including increases in working capital and, even more damaging, substitution to other materials such as aluminium or plastic.

The availability of copper units at commercially viable prices is absolutely critical to the industry.

Luvata, as a long­time member of the Copper and Brass Fabricators Council, along with 16 other member companies produce over 80 percent of all copper and brass mill products produced in the United States. These products are used primarily in the automotive, construction and electrical/electronic industries.

NET Global is the leading agent for Luvata in the America’s.

About Luvata:

Luvata is the leading international metals supplier of solutions, services, components and materials for manufacturing and construction. Luvata’s solutions are used in industries such as power generation, architecture, automotive, transport, medicine, air­conditioning, industrial refrigeration, consumer products and construction. The company’s continued success is attributed to its longevity, technological excellence and strategy of building partnerships beyond metals. Employing over 7,000 staff in 18 countries, Luvata works in partnership with customers such as Siemens, Toyota, CERN, Shaaz, and DWD International.

Metal, the Eternal Commodity

Oliver Sacks is a professor of neurology at New York University School of Medicine and author of the memoir “On the Move.” He has recently been faced with a terminal diagnosis of metastatic cancer. In the last months of his life he finds comfort in the world of science, specifically with metals and their innate connection to the natural world. He has turned to the physical sciences for an outlet from reality in both life and death. He finds comfort in the idea that metals and minerals represent a kind of eternal life that no human can achieve. It’s an interesting and unique way to look at metals and their origins in the midst of buying, selling and using them as merely a product and commodity in our everyday business.

As people who are surrounded by warehouses full of copper, zinc, brass, nickel, tin and countless other metals each day, we see our stocks as assets rather than appreciating the other valuable aspect of the business. Sacks gives us the opportunity to appreciate how metal is an eternal substance in this world. It has been around since the beginning and will be around forever. The metals we have in stock in our warehouse today were here on earth well before all our ancestors and will be here long after future generations. We work in a special industry, unlike any other, in this way. It is rare that we truly see and admire metal for what it actually is. Eternal.

A Falling Market

There seems to be no let-up in the selling we are seeing in the commodity markets. The market continues to remain quite low with some days remaining modest and even and other days declining severely. In addition, there are a few places to hide, as oil, base metals, precious metals and even the agricultural commodities are all joining the retreat. Currently there is a mixed tone in metals but a few important milestones have been reached. On July 31st, copper hit a fresh low for 2015, getting down to $5191, a six year low for itself. Cash aluminum prices breached the $1600 mark and the gold is now off another $16/ounce despite an RSI reading of below 20. This proves the point that technically oversold as a commodity is, it is best to let the market put in a bottom instead of guessing where it might be.

Miners are also in trouble with these continuously low markets leading to market value decline as well. Mining-dependent companies are facing problems with this as well as their stocks fall along with the market.

Most of this falling market can be explained by China’s change in metals consumption. As a growing industrial country in the past it was continuously the major consumer of metals until recent moderations and even declines in its consumption. The trend is all the more alarming given that the supply picture has remained largely accommodative, with output of steel, copper, and aluminum all running well ahead of what the market can bear. China’s economy is stalling on the manufacturing side meaning that we may not be seeing much relief in the future. Although China is not as active as it has been in the past, Japan is climbing as a consumer for metals, hopefully with others following in the future.

The dollar to euro exchange rate remains fixed in the 1.10 area. Any continued strength in the dollar could further lower metal prices across the board.

Copper is at $5236, down $36 and trading between $5191-$5278.

LME Metals have Hit a Record Low

LME metals have hit a record low for the past four months with copper primarily leading the downfall. The rest of the metals are following this pattern with nickel and tin being especially weak. In Asia fund selling and significant weakness emerging from the Chinese steel and iron ore future complexes are causing selling to be just as intense. For example, Shanghai copper is hitting its steepest daily drop in five months.

Volatility has also risen across a number of other markets. The Greek voting results came in strongly on the “No” side making the issue considerably more unpredictable going forward.

The Euro initially sank on the news initially due to the reaction in the markets, getting to a low of $1.0967 at one point in early Asian trading. Soon after it recovered somewhat to currently trade at about $1.1010.

All in all, we remain in a volatile situation with markets for copper, nickel and tin tending towards a weaker position going forward.