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| Copper is a key metal used in the global economy that has few effective substitutes. Its unique chemical and physical properties - including high electrical conductivity, resistance to corrosion, and excellent malleability and ductility, make it an excellent material for use in the building construction, electrical, telecommunications, transportation and industrial machinery businesses. Wire and cable products, used principally as energy cable, building wire and magnet wire, account for upwards of three-fourths of annual world copper consumption. Copper is also an important metal in non-electrical applications such as plumbing, roofing and, when alloyed with zinc to form brass, in many industrial and consumer applications. The building and construction industry accounts for approximately 40% of worldwide copper usage. Supply Since 2002, copper mine production capacity increases have been unable to keep pace with demand, resulting in supply/demand deficits and dramatic reductions in copper inventories maintained at the COMEX, LME and Shanghai Futures Exchanges. At the same time, the industry has been plagued by an absence of major new copper mine development projects, reflecting years and years of inadequate exploration funding and a lack of new discoveries. The International Copper Study Group (ICSG) estimates that world copper mine production reached 15.17 million metric tommes (MT) in 2006, an increase of about 290,000 MT (+1.9%) compared with that in 2005. For 2007, the ICSG predicts the world mine production of copper will reach 16.20 MT (+6.8%). However, even with this significant production increase, the world copper supply/demand balance will remain very tight, with a market surplus of only 240,000 MT. Demand Demand for copper is primarily driven by global economic development and the prevailing economic and business climate. In recent years, world copper demand has been growing at an average annual rate of nearly 4% per annum, with the largest overall increases in demand expected to continue to come from Asia, led by China. Although its importance has diminished relative to China, the United States still accounts for 13% of global copper demand. The International Copper Study Group (ICSG) predicts that world refined copper consumption will increase by 3.3% in 2007 to 17.16 million MT. Copper Prices LME cash (spot market) copper prices have fallen by more than 30% since reaching an all-time high of US$3.98/lb on May 12, 2006. The decline in prices is primarily attributed to the copper markets moving back into an approximate supply-demand balance, and LME inventory levels building back up to nearly 200,000 MT (representing about 5 days of world refined copper demand). Still, world copper inventories remain extremely low by historical standards, and would provide little cushion in the event of a major supply interruption. As of early 2007, the consensus forecasts of analysts and investment bankers call for copper prices to average somewhere on the order of US$2.65/lb during the coming year. Additional Sources Of Information
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