London, 6 January 2011

Industrial metal copper could climb above $12,000 a tonne by the end of June as the market factors in a supply shortage, Peter Fertig, a consultant at Quantitative Commodity Research told Reuters. Fertig forecast $7,525 a tonne for the average cash copper price for last year on the London Metal Exchange. Cash prices of the metal used in power and construction averaged $7,543 a tonne last year.

"The most likely scenario is for copper to rise to $12,500 a tonne, or slightly above by the end of the second quarter. Otherwise it could happen in the fourth quarter after the seasonal summer lull,," he said.

"Copper is likely to remain in a supply deficit this year, last year it was in deficit too ... Furthermore with the launch of the ETPs (physical base metal exchange traded products), there will be less copper available for consumers." The launch of physical copper, tin and nickel exchange traded products in December triggered a debate about the advantages and disadvantages for investors, consumers and producers.

Analysts expect the copper market -- currently estimated at about 19 million tonnes -- to see a small deficit last year and a bigger shortfall in 2011.

Reuters is planning to update its survey of analysts forecasts for copper prices and market balances for this year and 2012 later this month. Benchmark copper prices on the London Metal Exchange gained about 30 percent last year and were up more than 140 percent in 2009.

CHINA GROWTH

Fertig alongside other analysts expects lower grade copper ore to add to supply shortages, which have been exacerbated by output disruptions and shelving of projects after the final quarter of 2008 when the world feared a 1930s-style depression.

"With a still growing global economy, demand for copper is likely to increase and outpace rises in supply," he said, adding that he expects copper stocks to decline further.

"With a supply deficit, you normally also have falling inventories." Stocks of copper in London Metal Exchange warehouses have risen about 30,000 tonnes since December 9 to 379,250 tonnes, but that number is more than 30 percent below the levels seen in February last year.

Fertig said tighter monetary policy in China could damage copper market sentiment. Also, a negative would be gross domestic product growth at around 8 percent in the country, the world's largest copper consumer.

"Chinese growth around 10 percent would not prevent copper prices from rising ... the risk factor is financing costs and the impact on the construction sector in China," Fertig said. "China is the biggest consumer, but it is not the only country on this planet. Other emerging market countries in Asia and Latin America could also increase their copper demand."

However, Fertig said other developing countries may not be able to completely offset any potential decline in demand from China, which is said to account for between 30 to 40 percent of global copper consumption.

"If copper prices exceed $10,000/$11,000 a tonne then China's SRB (State Reserves Bureau) may release some of its stockpile into the market."

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