New York: Citigroup Inc., the world’s biggest bank, raised its 2008 and 2009 forecasts for copper, saying dwindling supplies of the metal will keep itin a “super cycle” of higher prices. Copper will average $3.50 (Rs141 at Tuesday’s rate) a pound (0.45kg) next year, Citigroup analysts, led by John H. Hill in San Francisco, said in a report that was emailed to clients and dated Monday. That’s 46% higher than the bank’s previous forecast of $2.40. Copper will average $3 in 2009, topping the previous estimate of $1.50, Hill said.
The metal has gained 27% this year as inventories monitored by the London Metal Exchange fell 45% and imports surged in China. The demand for copper has exceeded mine output during the first four months of the year, forcing manufacturers to use more inventory, the Lisbon-based International Copper Study Group (ICSG) said last week.
“We see little chance that inventories can be rebuilt before 2010,” Hill said. “The legacy of a decade of underinvestment, frictional barriers to new capacity and voracious demand in both developing and established economies have overwhelmed supply,” he added.
In February 2005, Citigroup’s Alan Heap, the bank’s director of global commodity analysis, had said metals may be entering a “super cycle”. Since then, prices for metals, including copper, have more than doubled.
Copper futures for September delivery fell 4.9 cents, or 1.3%, to $3.6565 a pound on the Comex division of the New York Mercantile Exchange. The metal has still gained 8.1% over the past year.
Miners are unable to keep up with the rising demand as shortages of equipment and staff, and lower ore grades limit production, Hill said. “Lower than expected supply has been the most important factor supporting prices above forecast levels,” Citigroup said.
Global refined copper consumption outstripped production by 265,000 tonnes from January through April this year, as Chinese usage increased 38%, ICSG had said on 18 July.
Growing demand in China, the world’s largest copper user, will also support the higher copper price, Hill said.
Chinese consumption will increase by an average 12% a year, Citigroup said. Global demand will expand by 4.5%, more than the bank’s previous estimate of 2.5%. “Copper is the consummate China play,” Hill said.
A futures contract is an obligation to buy or sell a commodity at fixed price for delivery by a specific date in the future.