First published, May 26 2006 

 

PRESS RELEASE:

INDUSTRY MAVERICK SAYS COPPER COULD BE HEADED FOR CRASH

Trader David Threlkeld speaks at Business News Americas' Mining CEO Forum,

"The Copper Price: More boom or bust on the horizon?"

Renowned copper trader David Threlkeld, who blew the whistle on the Hamanaka copper trading scandal in the early 1990s, warned copper companies about a possible crash in the copper market during a May 25 speech.

"The market is in a very, very critical situation," he warned. "The message I'm trying to bring is be conservative. Be rational. Be businesslike." Mr. Threlkeld was speaking at Business News Americas' Mining CEO Forum in Santiago, Chile, at the Expomin mining fair.

The copper market, particularly on the London Metal Exchange (LME), is driven by fund managers who have a financial stake in high copper prices that have dominated the market of late, according to Mr. Threlkeld. When traders decide to sell their copper, they may have trouble finding buyers which could in turn create a crash in the market.

Mr. Threlkeld raised questions about the fundamentals of supply and demand in the copper market, warning that production is likely to go up while consumption is going down. Despite China's growth, its imports of copper are declining and its domestic production of cathodes is increasing, he said.

In order to protect their businesses from a possible crash in the copper market, copper companies needs to increase hedge positions, according to Mr. Threlkeld.

Highlights from Mr. Threlkeld's Speech:

On bullish sentiment in the copper market:

"There is no limit to where some people want something to go to," he said in reference to the bullish attitude of many copper analysts. "At some point we have to be rational and say, 'how much of this is supply and demand, and how much of it is hot air?'"

On copper market fundamentals:

While copper production statistics are generally reliable, consumption and inventory data is hard to pin down. "We have a good idea of production numbers… We never really know what consumption numbers are. Consumption numbers can be manipulated, they can be played with, because it was done before."

"If four dollar copper is real, so be it. If four dollar [copper] is just because it's a temporary apparition, that will mean that the resulting fallout will create a catastrophic decline in price. You who are in the business have to plan ahead."

"Markets get into trouble when people bring artificial elements into them. If those artificial elements can't be supported - I'm talking about cash to support them - there's usually a problem. Remember, every action has an equal and opposite reaction."

"China is not buying more copper. In fact, China is producing more copper. Copper production in the first three months of this year went up 25%. China is building 20 copper smelters. They're expanding existing smelters, state-of-the-art. China will be the world's largest producer of copper cathodes at some point."

On copper trading:

"Markets run on two things: fear and greed. London right now is full of fear, and the funds are full of greed."

The LME went to great lengths to attract the funds, which is fine. But "the market should not be taken over by funds. The funds have essentially taken the market."

"The funds have bought collectively one to 10 million tonnes - I throw that wide number out because nobody knows what they've bought - but they have bought a substantial amount of copper. They have technically bought it from producers one way or another. If they ever decide to sell those positions, who are they going to sell them to?"

"We will have a decline not unlike we did in the stock market in '87 when the market declined 23% in one day for no apparent reason… Never in its history have we seen the market so heavily bought by those who don't consume."

On the need to hedge:

"The degree of sophistication in copper hedging is extremely low. There are some companies that don't hedge ever. They go with the swings and go with the roundabouts. There are some companies that do hedge and they do a little bit but they don't do enough."

For more information, please contact:

Mr. Shaun Sheffield

Director, Business Development

Business News Americas

Santiago, Chile

www.BNamericas.com

Telephone: +56 (2) 232-0302

Fax: +56 (2) 232-9376

Email: shaun@BNamericas.com

About David Threlkeld: Mr Threlkeld lives in Arizona and is president of Resolved Inc. He is a trader in non-ferrous metals, currency and debt instruments, and is an international advisor on hedging and trading.

About Business News Americas: Business News Americas (www.BNamericas.com) is celebrating 10 years reporting as the recognized news and information leader on Latin America's most important industry sectors