Bloomberg News

Copper Set for ‘Strong Rally’ in 2Q on Deficit, Goldman Says

November 23, 2011

(Adds comments from second paragraph.)

Nov. 21 (Bloomberg) -- Copper may be set for a “strong rally” in the second quarter of next year amid an expected deficit of the metal, according to Goldman Sachs Group Inc.

Demand may exceed supply by 180,000 metric tons in 2012 and 176,000 tons in 2011, Max Layton and Allison Nathan, analysts at Goldman, wrote in a report dated yesterday. Copper will rise to $8,000 a ton over the next three months, $9,000 a ton over the next six months, and $9,500 a ton over the coming 12 months, the report said.

Copper, used in pipes and wires, fell more than 20 percent into a bear market since reaching a record $10,190 a ton in February amid mounting concern that Europe’s debt crisis will curb demand in the region that accounts for about 19 percent of global consumption. Industrial output in China, the world’s largest consumer, trailed economists’ forecasts in October, according to the nation’s National Bureau of Statistics.

“While the European debt crisis and macro economic uncertainty have kept the market squarely focused on demand, supply disappointments have continued to dominate copper fundamentals, with concentrate tightening markedly since mid- 2011,” the Goldman analysts said.

Labor strikes at Freeport-McMoRan Copper & Gold Inc.’s 625,000 ton-per-annual Grasberg mine, which accounts for almost 4 percent of global supply, have taken center stage, they wrote.

Three-month delivery copper on the London Metal Exchange fell 0.8 percent to $7,461.50 a ton at 12:14 p.m. in Tokyo after losing 1.5 percent last week, the third straight weekly drop.

Flat Output

About 8,000 workers at Grasberg, Indonesia have been on strike since Sept. 15 demanding higher wages. A union official said on Nov. 9 that the strike would be extended for a third month until Dec. 15.

For 2011, “it appears that output will be flat year-on- year, owing to as much as 1.05 million tons of disruptions relative to plan, despite extremely strong industry margins,” they said.

“Although production has again been weak in 2011, we do expect mine supply growth of 4.3 percent in 2012, primarily due to brownfield expansions and a rebound in existing production from 2011’s unusually low base,” because of rebounding grades,” the report said.

“This output growth will be met by solid but unspectacular copper demand growth from China on the back of the build out of social housing, power infrastructure, and more general macroeconomic easing, minimal growth in U.S. consumption and falls in European consumption,” it said.

A further worsening of Europe’s debt problems and a cooling down of the Chinese economy “are some major downside risks to the short-term outlook,” the report said. China’s industrial production, in general, and the state of “a number of Chinese end-use markets for copper, such as consumer appliances, autos” are of concern, it said.

--Editors: Ovais Subhani, Richard Dobson

To contact the reporter on this story: Jae Hur in Tokyo at jhur1@bloomberg.net

To contact the editor responsible for this story: Richard Dobson at rdobson4@bloomberg.net


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