London, 10 January 2012

The drive to develop China's interior will keep copper prices firm in a $7,000 a tonne to $9,000 range in 2012, offsetting demand damaged by a floundering European economy, a top Sucden Financial executive in Asia told Reuters.

"The most likely scenario is a $7,000 to $9,000 type range, with potential for $500 either side of that quite feasible in short term spikes," said Jeremy Goldwyn, Asian business development chief of the commodities broker.

"This year we'll have a weak Europe," he said. "That has two impacts: the real impact, on supply and demand, and the emotional impact, on investment risk appetite, on bank lending, on all those features that could still cause a crisis because of the lack of confidence."

"China is not a panacea (but) ...in a relatively weak global and local year, the fact that demand was still pretty good is quite a positive sign," he said on the sidelines of a copper conference in Shanghai.

Copper prices, seen as a proxy for industrial demand, hit a record of $10,190 a tonne on the London Metal Exchange in February 2011, closing the year down by around 21 percent. Three-month copper on the LME traded down 0.7 pct at $7,528.75 a tonne at 1108 GMT.

"In a year when (Chinese) construction slowed, where sales of automotives - which had been very strong - slowed, where crises such as the high speed rail crash led to a slowdown in development...we still had pretty good consumption, a draw down in stocks, and reasonably high premiums on physical metals," Goldwyn added.

China is the world's biggest consumer of metals, accounting for around 40 percent of refined copper demand. Sucden Financial, a privately held commodities broker, has a market capitalisation of GBP 60 million ($93 million), and is a ring dealing member of the LME.

Goldwyn said that Chinese policy announced last year aimed at developing impoverished inland areas not only would boost demand for autos and consumer goods, but would also push an infrastructure roll out to support the region's growing manufacturing sector.

"Domestic consumption is going to be an important (policy) feature this year, and that's good for commodities," he said.

Goldwyn doesn't see metals being hit as badly by a looming European recession as other export markets like textiles and household goods. "If you offset that against the negativity of Europe...it's a net positive."

UNDERGROUND CREDIT

Goldwyn expected the practice of using copper as collateral by Chinese companies to secure cheaper lending to continue, if at a slightly slower pace, this year. "A lot of those small to medium enterprises, manufacturers borrowed the money...to play other markets," he said. "That hasn't finished. Pockets of it have changed, but there is a significant amount of copper involved in that process."

Even when importing copper was a losing trade, given the price differential between LME and Shanghai Futures Exchange prices, China's monthly copper imports still totalled between 100,000 and 200,000 tonnes, he noted.

"Some of that unquestionably was because it was being used for other means, and (importers) weren't worried about losses in copper but because they were making money elsewhere."

Goldwyn said there was one chance in five that copper prices could forge new records, if an economic recovery revived sentiment and forced shorts to cover. "We could go through $10,000 I still maintain this year, and that would be driven a by a return of confidence and the investment community and risk appetite," he said.

"There are also significant shorts in the market....There are people who need to buy back those shorts and not only would they buy them back, but they'd then go long. So a short covering spiral could fuel prices significantly higher."

Ends --

Reuters - for Commodities Now