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CRU/CESCO-Copper prices seen electrifying in long run

SANTIAGO, April 3 (Reuters) - The worst of death-defying drops that global copper prices took in the past year appear to be over and, in the long run, prices should rise again on the back of electric energy sector growth in the developing world.

But the outlook for the short and medium terms is more opaque as global leaders try to revive national economies with massive stimulus packages. And the scrap market may hold a wild card as all this plays out.

After tumbling from highs of over $4 per pound last July to a low of $1.25 in December, prices recovered steadily in recent months and surged this week to $1.90 a lb on short-covering by traders and purchases by China.

That has given industry leaders a momentary sigh of relief. There is a view that prices will ease a bit in the middle of this year to $1.50 a lb but then head upward again as the basic fundamentals of the industry hold constant -- with China driving demand and Chile leading supply.

For the second half of this year, the market will face especially dicey variables, including whether fiscal stimulus packages will work, how much inflation central banks will create with aggressive monetary easing, and when credit markets will return to normal to fund mineral purchases and the construction of new mines.

“The question for the third quarter will be: is demand still falling and is short-covering over,” Jim Southwood, president of price risk management for CRU, told Reuters at the CRU/CESCO copper conference in Santiago that was held this week.

This year, there is an especially wily factor in play: scrap metal.

A severe contraction in the global scrap market has supported copper prices as so-called urban miners gather less second-hand metal for refining amid the price slump.

Scrap copper accounted for nearly a third of the world copper market during the peak in demand in mid-2008.

Copper scrap acts like a buffer: when prices reached record highs in July 2008, scrap supply helped keep them from rising further and the plunge in scrap supplies helped support prices when they fell in December.

“I’d guess as much as 80 percent of the high-end scrap market has disappeared since last year,” said Carlos Risopatron, head of environment and economics at the United Nations-linked International Copper Study Group (ICSG).

NEW MARKETS, NEW TECHNOLOGIES

With the outlook for the rest of the year cloudy, unbridled optimists are looking at the long-term.

Gianni Kovacevic of Petaquilla Metals said that broad trends support higher prices.

Urbanization and growth in electric energy generation, transmission and distribution in the developing world will boost demand for the metal. This in turn will have the added effect of intensifying sales of copper-intensive appliances like refrigerators and air conditioners.

The industry is also carving out new markets for the metal. Miners say there is a huge opportunity to use copper for its anti-bacterial qualities in hospital, doorknobs and beds.

The spread of hybrid and electric cars, wind farms and solar energy plants also bodes well for copper usage, he said.

“The majority of the world’s population still isn’t electrified,” Kovacevic pointed out.

Robert Friedland, president of Ivanhoe Nickel and Platinum, told miners to ignore the current bad news and expand.

“The pace of urbanization and electrification will overwhelm this crisis,” he said. “The winners of this game will be Chile, Mongolia and Congo,” he said of the countries with the most promising copper reserves.

“Cheer up, there’s no need to cry in your beer,” Friedland told a packed conference room at this week’s annual CRU in Santiago, the world’s largest gathering of copper industry leaders. (Additional reporting by Reese Ewing, Pav Jordan and Manuel Farias; Editing by John Picinich)

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