HEADING FOR DEFICIT IN 2011

London investment bank Fairfax is positive on the prospects for the copper price over the next two years with any possible small supply surpluses being taken up by investment demand.

Author: Lawrence Williams
Posted: Thursday , 06 Aug 2009

LONDON -

London investment bank Fairfax I.S. plc has published a note outlining its supply/demand prognostications for the copper sector over the next two years and the overall view is a positive one for the copper miners. While the bank's analysts see an industrial supply 163,000 tonne surplus this year, diminishing to 110,000 tonnes next year, they feel that this - a tiny amount in relation to global refined copper consumption of around 19 million tonnes a year - could easily be taken up anyway by investment demand.

Thus Fairfax reckons this could leave copper supply/demand finely balanced in 2010 before heading for a deficit in 2011.

Indeed the bank reckons that the copper concentrate market may already actually be in deficit with China soaking up demand while the Japanese smelters are being squeezed by low TC/RC rates and poor local demand. Mid-year TC/RC charges have thus been settled at $45-50/t and 4.5-5.0 c/lb, well below the current benchmark which sits at $75/7.5c/lb. Furthermore spot rates are being quoted as being far lower than the latest downwardly-adjusted quoted charges.

Most of the recent strong demand for copper has come from China where the very effective stimulus programme is filtering through the economy and creating new consumer demand for copper bearing goods in rural China while at the same time stimulating manufacturing demand. General infrastructure development, which is being kept at a high level, requires a vast amount of copper, particularly in power transmission.

Meanwhile there is the possibility of supply interruptions - in part generated by some of the cutbacks implemented by major producers leading to some labour unrest when layoffs are involved.