Chilean Mining Minister Expects Copper Prices to Plunge

SHANGHAI, Jan. 12 (SMM) -- Global copper prices could experience an "important" downward correction since the existing high inventories continue to grow, Santiago Gonzalez, Chile's Mining Minister said on January 11th.

"We are worried that inventories are rising further, and existing stock levels are 700,000 mt, while prices remain strong. This means a violent change will happen and prices could drop," Gonzalez said in Santiago, the capital of Chile.

Gonzalez said Chile is closely monitoring the disparity between prices and inventories, which he believes is the largest disparity in the past 20 years.

On Monday, copper prices advanced more than 3%, propelled by fund buying and a strong import data in China which strengthened the optimism for a continued strong demand from the world's largest copper consumer.

LME three-month copper prices traded at USD 7,695/mt from the closing prices at USD 7,465/mt last Friday, and with prices reaching as high as USD 7,705/mt.

Analysts warned that high copper inventories will weigh down copper prices, which are on the way to returning to levels reported before the global crisis.

Chile's state-run Codelco, the world's largest copper producer, set a new record high of output in 2009, hitting over 1.7 million mt, and the rising trend continues in 2010, signaling ample global supply.

However, improved optimism among investors towards a global economic recovery has helped copper prices advance beyond fundamentals.

Moreover, Threats of labor upheaval at key mines around the world later this year could also help copper prices rise further in 2010.

(Edited by SMM)