The well respected research consultancy GFMS in London has come out with a supportive view of the copper market through to 2012. At a time when many commentators are reporting movements in the copper prices as tracking stock markets and when the view seems to be that stock markets have reached a peak for 2009 (there are contrary views of course but we would venture to suggest that the majority view is that markets have probably peaked on the basis of expected earnings and the economic backdrop) and so metals markets are unlikely to get a surge of support from the stock markets, GFMS predicts the copper price will remain around $6,500 per metric ton ($2.95/lb) in the final three months of this year and continue next year to a peak of $7,500 per metric ton ($3.40/lb). Prices briefly dropped below $3,000 per ton at the end of 2008 so they have more than doubled already this year. The firm is predicting strong demand for physical metal in the fourth quarter which will cut the production surplus to 245,000 tons from their previous forecast of 441,000 tons. They are predicting the market will go into deficit in 2010 to the tune of 88,000 tons and the deficit to double to 176,000 tons by 2012.
GFMS appears to base their projection on a tightening of supply following mine closures and cut backs coinciding with an increase in both end-user demand from Asia and gradually North America and Europe plus an increase in fund buying where the funds are backed by physical metal effectively taking metal out of circulation.
In broad terms GFMS’s logic appears fairly sound. Of all the major non ferrous metals, copper appears to have one of the best set of fundamentals. This year’s rise has undoubtedly been driven in the early months by China’s SRB buying but that has been absent for some time now and the price has continued to steadily rise on the back of physical and fund buying. An unexpected double dip recession notwithstanding, copper looks likely to remain north of $6,000 per ton from here on. Watch out for a short term blip in the third quarter though, we are expecting all the base metals to pull back with an easing of the bull run on the stock markets. If GFMS are correct it could be a good time to buy.