Copper prices forecast low levels as demand outpaces supply

Supplies of copper are expected to hit record low levels at about the middle of next year, which will push prices for the metal to "all- time" highs as demand outpaces supply, according to Kevin Norrish, a director of commodity research at Barclays Capital.

For South African investors this is important because there are a number of companies listed on the JSE that are exposed to copper. Metorex is fully exposed to copper from its mines in Zambia and the Democratic Republic of Congo. Palabora Mining operates a copper mine in Limpopo.

African Rainbow Minerals and Brazilian miner Vale are building the 380m Konkola copper mine in Zambia. Anglo American and BHP Billiton , with their diversified asset suites, are both big producers of the metal, used largely in electronic applications.

Speaking at the Mining Indaba in Cape Town in February this year, Mr Norrish forecast record high copper prices. He said prices would average 6875 a ton this year, 7000 next year and hit a high of 8500 in 2012. This was as supply struggled to keep up with demand, particularly from China and the 30-member Organisation for Economic Co-operation and Development (OECD).

Barclays now expects copper prices ? it is trading at about 8380 a ton ? to trade consistently above 9000 next year, peaking to an average of 9950 in the third quarter, meaning it will breach 10000 about then.

"The year turned out even stronger than we expected. We were very bullish early in the year," Mr Norrish told Business Day in an interview on Friday.

"We thought the big drivers would be lack of growth on the supply, and strong demand recovery. What we?ve seen is an even stronger recovery in demand than we expected to see. The supply side has done a little bit better than we thought," he said.

Barclays expects a "very tight" market next year.

"We?ve got an extremely large deficit. We think copper stocks are going to hit all-time lows some time in the middle of next year and that is going to propel copper prices to all-time highs," Mr Norrish said.

Barclays forecasts that inventory levels of copper would fall to less than a week-and-a-half?s worth of consumption in the second half of next year from an average of about four weeks in the past few years, he said.

"We?ll be at a level we haven?t seen before. That is an all-time low," Mr Norrish said.

Xstrata CEO Mick Davis said earlier this year that projections of supply made in 2007 of new copper expected to come on stream by 2020 had fallen by a cumulative amount of about 21-million tons by the end of last year, an average of 2-million tons a year.

Copper miners produce 18- million tons a year in total.

"There is simply no confidence in the ability of the copper industry to supply into long-term demand," Mr Davis said.