Commodity Strategists: Copper May Rise, Says Barclays
2005-05-31 11:48 (New York)
By Chia-Peck Wong
May 31 (Bloomberg) -- Copper prices may rise above a record
set in April because supply won't be sufficient to meet demand
from China, where usage may grow at least 10 percent this year,
said Ingrid Sternby, a base metals analyst at Barclays Capital.
Global copper consumption will rise to 17.37 million metric
tons this year, according to Sternby. Stockpiles of the metal at
warehouses monitored by exchanges in London, New York and
Shanghai totaled 93,626 tons on May 27. That is less than two
days of global consumption, based on her figures.
Copper prices adjusted for inflation are about 25 percent
lower than in the late 1980s when global stockpiles were at
similar levels, Sternby said. Copper dropped $31, or 1 percent,
to $3,045 a ton as of 4:45 p.m. on the London Metal Exchange
today. It rose to a record $3,338 a ton on April 12.
The metal at $3,000 a ton is ``an attractive buying
opportunity,'' Sternby said at a Shanghai conference on May 28.
``We continue to look for fresh highs in this market.''
Sternby was the second-most accurate of 19 copper analysts
surveyed by Bloomberg News at the start of 2004, predicting an
average price of $2,238 a ton for the year. The metal averaged
$2,790.5 in 2004. Barclays Capital, the investment-banking arm of
Barclays Plc, is one of the 11 companies that trade on the floor
of the LME. It also finances metals projects and owns stakes in
companies such as London-based Anglo American Plc., the world's
second-largest mining company.
Copper for delivery in three months on the LME, the world's
biggest metals bourse, has fallen about 8 percent from the April
12 high amid concern the price may dent demand.
Smelter Shutdowns
Rising output at copper mines hasn't fed into higher refined
metal supply because smelters aren't able to process the ore,
partly due to maintenance shutdowns, Sternby said.
Maintenance closures of smelters around the world in the
first half of this year may reduce copper output by 399,000 tons,
Jim Lennon, a metals analyst at Macquarie Bank Ltd., said at the
Shanghai conference on May 28.
Mining companies that want to boost output to take advantage
of rising prices may not be able to do so quickly enough as there
is a shortage of mining equipment, Sternby said.
``We've heard that replacement (of equipment) takes nine
months in some cases,'' she said. ``In a very tight copper
market, that's raising the risk of a sharp price hike.''
China
Copper use in China, the world's biggest consumer, will grow
as the country expands its power-generating capacity in 2005 and
2006, Sternby said. The industry accounts for 30 percent of
China's copper demand, she said.
Macquarie's Lennon forecasts China's demand will grow by 10
percent this year to 3.96 million tons. Last year, China's
refined copper demand rose 19 percent to 3.6 million tons.
Barclays remains a ``long-term bull'' on commodities as
China's industrialization continues while more of its population
move to cities, increasing the demand for houses and electrical
appliances, Sternby said.
China Minmetals Corp., the country's biggest state-owned
metals trading company, and Chile's Codelco, the world's largest
producer, will each take 50 percent in a $550 million venture to
develop mines in Chile, the companies said in a statement. The
investment could increase to $2 billion, they said today, without
giving a timescale.
Jiangxi Copper Co., China's largest producer of the metal,
forecasts profit will increase in the second quarter from the
previous three months because rising copper prices haven't slowed
demand.
``Chinese demand for copper is substantial,'' Wang Chiwei,
executive director at Jiangxi Copper, said in Shanghai on May 28.
``We haven't seen any difficulties in sales.'' He declined to
disclose the estimated increase in profit.
Record
Sternby didn't give a forecast on how high prices would rise
or over what time frame. She wasn't immediately available when
called by Bloomberg News today.
She predicted on March 16 copper cash prices on the LME
would reach $4,000 a ton in the following six months. The cash
contract reached a high of $3,497 a ton on April 12.
Copper prices may also rise as pension funds look to
diversify their holdings by investing in commodities, she said.
Two-thirds of private banks, plus pension and hedge funds
that don't invest in commodities, said they may invest at least 5
percent in these markets in the next few years, Sternby said,
citing a survey Barclays conducted when it held a seminar for
about 150 of these investors in early February.
Sternby retained her April forecast that copper for cash
delivery on the LME will average $3,300 a ton this year. The
average so far is $3,288 a ton.
Her 2004 forecast of $2,238 was higher than the $2,195
median of 19 analysts. All of them underestimated the rally that
took copper to an average of $2,684.
Demand
Sternby estimates that global demand this year will exceed
supply by 72,000 tons, from 879,000 tons last year. By next year,
the situation will reverse, with supply exceeding demand by
143,000 tons, possibly resulting in an average cash price of
$2,900, she said.
By contrast, Macquarie's Lennon forecast global supply will
exceed demand this year by 72,000 tons with the surplus widening
to 418,000 tons next year.
LME's cash copper price may average $3,042 a ton this year
and $2,535 next year, he said. |
