CopperCopper is one of the minerals identified on our property. The world is going to need copper badly as per attached and price are going to hit high ceilings. I took this off another board but it pertains
Tight Supply/Demand Picture Leaves Analysts, Investors Bullish On Copper
17 December 2010, 12:00 p.m.
By Allen Sykora
Of Kitco News
https://www.kitco.com/
Editor’s Note: Prices for manyprecious and base metals hit record highs in 2010, as economicuncertainty rattled around the globe. What does 2011 hold for gold,silver, platinum, palladium, copper and other metals? Kitco Newsreporters have prepared a series of stories which examine what is instore for 2011, not only for metals but for currencies, stocks and theoverall economy. These stories will be posted on Kitco.com during theholiday period and also will be featured in a special section. Staytuned for video highlights as well.
(Kitco News) - Copper’s supply/demand picture maybecome so tight that many analysts and institutional investors say itis one of the commodities on which they are the most bullish for 2011.
Copper has already staged an impressive rally from thecommodity-wide sell-off that occurred when the global financial crisishit in 2008. While Western economies were weak, copper demand remainedstrong in emerging economies such as China, the world’s largestconsumer of the metal. Whenever recovery picks up in the West, demandshould rise further.
Meanwhile, analysts say, mining companies will not be able to rampup output fast enough to keep up with demand, leaving a globalsupply/demand deficit for 2011.
“It’s our top commodity pick for next year,” said Bart Melek, global commodity strategist with BMO Capital Markets.
The same was true for many institutional investors surveyed byBarclays Capital during an investor conference in December. More than300 participants were asked to rate which commodity or sector willperform best in 2011, and copper got the highest rating with 26%,followed by grains at 23% and crude oil at 19%.
Analysts have been releasing commodity forecasts for 2011 thismonth, and Goldman Sachs, Morgan Stanley and Barclays Capital are amongthose listing copper as one of the markets they expect to fare best.
“We expect to see pretty tight market conditions for copper nextyear,” Melek said. “The crux of the story is that we are expectingsupply to be outstripped by demand growth.”
BMO projects a 2011 copper deficit of around 380,000 metric tons.Standard Bank analyst Leon Westgate looks for a deficit of 385,000metric tons, widening to 562,000 in 2012.
“I think the real tightness in the market is going to come in 2012,”Westgate said. “While I’m bullish next year, I’m super bullish for2012.”
BNP Paribas analyst Stephen Briggs looks for a supply deficit of 200,000 metric tons this year, widening to 500,000 in 2011.
Analysts often measure tightness by looking at the how many weekscurrent inventories will last, based on global consumption. For 2011,this is likely to fall to around 2.2 weeks, comparable to the 2006-2008period, Westgate said. But then in 2012, he looks for a further dropto 0.7 week.
A recent Morgan Stanley report said the stocks-to-consumption ratiofell to 3.4 weeks at the end of the third quarter. This was a“remarkable” given below-par growth in developed nations, plus risks toemerging-market growth arising from inflation, Morgan Stanley said.
There is a wide range of price forecasts. Morgan Stanley looks foraverage of $7,900 a metric ton in 2011, up from $7,300 for 2010although down from current levels. VM Group lists an average of $8,833but a three-month target of $9,100 and a 12-month target of $8,500. VMGroup looks for prices to top $10,000, but with volatility andpotential for a correction if Chinese authorities are aggressivereining in money supply.
Citi also expects copper to hit $10,000 in the next to 12 months.Barclays looks for copper average $9,950 in the third quarter alone.Goldman Sachs looks for LME copper to hit $11,000 a ton in 12 months.
Global Recovery Driving Demand While Constraints Limit Supply
Copper demand should be driven by a continuing global economicrecovery, Melek said. In particular, an improving auto sector likelywill consume more copper, while China will also need more metal to keepbuilding its power and other infrastructure.
Also, there is potential for physically exchange-traded funds inbase metals to take still more copper off of the market. ETF Securitieslaunched an ETF on Dec. 10, and J.P. Morgan Chase & Co. andBlackRock Asset Management International are also looking to launchcopper ETFs.
Some analysts wonder if base-metals ETFs will become as popular as those in precious metals.
“We have our doubts about the attractiveness of theseinvestment products, but so tight is the copper market likely to becomethat even modest tonnages risk material being bid away fromconsumers,” Briggs said.
Meanwhile, a number of factors are limiting the ability of mining companies to hike production.
For starters, there were relatively few mine cutbacks in 2008-09,meaning little in the way of restarts, Briggs said. Where cutbacks didoccur, miners have been slow to reverse them, he said.
Ore grades are declining at aging mines, Briggs and Melek said. Forinstance, in late summer, controlling owner BHP Billiton reported thatproduction at the Chile’s Escondida mine, the largest in the world,will fall as much as 10% by the middle of next year due to lower oregrades.
There have been limited major discoveries and developments in recentyears, analysts said. Furthermore, some of the potential newoperations are in regions of the world with high geopolitical risk,which makes companies cautious about investment, Melek said.
“The difference in copper, compared to a lot of other commodities,is the supply side really is extraordinarily tight,” said KevinNorrish, managing director of commodities research. “The problem forcopper is there just aren’t lots of large projects out there in the waythat perhaps there were 10 or 15 years ago. It’s becoming verydifficult to grow supply.”
Prices above $10,000 could make some projects feasible, whereasmaybe they would not be at $7,000 or $8,000, Norrish said. “But it willtake time to get those up and running,” he said.
Analysts with Goldman Sachs, in a research report, said base metalssuch as copper are even closer to a “structural bull market” than oilbecause of supply issues. In the case of crude, declining inventoriesand rising prices may be followed by OPEC producing from sparecapacity. But for many base metals, producers are already at fullcapacity and existing inventories are the only “spare,” Goldman said.
In fact, Goldman said, nearly all exchange inventories may beexhausted over the course of 2011, forcing the market into demandrationing.
“We are expecting copper stocks to fall to the lowest that they’ve ever been,” Norrish said
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