Those commodity markets recently experiencing precipitous price falls have had one thing in common: large gaps between prevailing prices and production costs

John Robertson

PortfolioDirect

Those commodity markets recently experiencing precipitous price falls have had one thing in common: large gaps between prevailing prices and production costs. How low can copper prices now fall? The chart shows estimates of the cost of producing refined copper each year since 1997 (based on data from the Chilean Copper Commission) and average annual prices. Note the connection between the two lines over the first six years of the period covered before the cyclical rise in prices began. Costs have also risen dramatically since 2005 so sub-$1/lb prices are no longer on the cards but, whatever their level, they will continue to set the lower bound for prices in more normal markets and without an unanticipated surge in demand. Meanwhile, lower prices will encourage action to cut costs which will also be pressured lower outside the USA by a stronger US dollar.


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John Robertson is Chief Investment Strategist for PortfolioDirect a provider of resource sector investment stock ratings and portfolio strategies for mining and oil and gas investors. He has worked as a policy economist, corporate business...

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