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Source: Bloomberg
Copper prices should rise to $9,000 a metric tonne by April-May, 2009, as a combination of a physical demand and a peak in index fund holdings takes its toll, Bloomsbury Minerals analyst Chris Welch said Friday.
Copper's price forecasts have systematically been underrated, Welch said, because many statistics fail to take into account the consumption of unreported stocks, mine production has been over-forecast and the requirement for working stock has been ignored in a growing industry. Additionally, he said long-only investment in copper has been confused with speculative trade. Speaking at the 20:20 Investor Series seminar in London, Welch said Bloomsbury predicts a surplus of 25,000 tonnes of copper in the third quarter of 2007, which is smaller than many had expected. In the fourth quarter of 2007, demand from western Europe and the US will be very weak but the fate of the copper market is determined by consumers in China, India, Russia, Central Europe and the Middle East, Welch said. Strikes in Peru and Mexico are also important to price forecasts, Welch added. Welch said Bloomsbury sees reference to BRIC - Brazil, Russia, India and China - as a distraction to where real copper demand is coming from. Most demand is coming from a combination of Brazil, India, Indonesia and China, where consumption has increased the most between 2002 and 2007 by 2.36-million tonnes.
Another important grouping is the UAE, Turkey, Egypt, Saudi Arabia, where copper demand grew by 2,60,000 tonnes between 2002 and 2007, Welch said. Demand in Germany, Italy, Russia, Poland grew by 9,05,000 tonnes. Meanwhile, demand for copper in the UK, US, Australia and Greece declined by 6,45,000 tonnes. In 2008 and 2009, reduced annual growth in essential working stocks will create a tiny commercial deficit, with raw materials supply predicted to remain tight.
Welch said on top of a deficit in the refined copper market in 2007, there is also one in the concentrates market. But mine production is expected to speed up in 2009-2010, and then roughly 15% of the next four years' production growth will go to rebuild concentrates stocks to more normal levels.
Welch forecast a commercial copper market surplus for 2010-2011, largely because it is assumed the "once per decade" global recession will occur then. However, he said if there isn't a global recession then copper market conditions will be tight until new projects currently going through the feasibility stage come on stream. Much of this new output is expected from 2012 onwards.
