Robust demand to push copper into deficit in 2010

Healthy global demand and the possibility of supply disruptions mean the copper market could see a small deficit this year compared with previous forecasts of a surplus, a Reuters survey showed. The survey of 13 metal analysts carried out over the last two weeks showed the copper market was expected to have a deficit of 23,000 tonnes. In the January survey expectations were for a surplus of 115,000 tonnes.
Global demand for copper - used widely in power and construction - is expected to rise 4.5 percent to 18.5 million tonnes this year, the survey showed. China's refined copper imports at 220,530 tonnes in February were up 12 percent from the previous month, ahead of forecasts of 190,000 tonnes, a sign of robust demand from the world's largest consumer of industrial metals.
"It has become clear from data so far in 2010 that the strength of economic growth will set a firm base for further strong gains in China's copper demand," said Gayle Berry, analyst at Barclays Capital. "Continued expansion of the power grid, strong auto sales and uptake of consumer appliances will be the key drivers." The copper market last year was boosted by Chinese government and consumer demand, partly for stockpiling.
Strong Chinese demand can be seen in the country's refined copper imports - a record 3.19 million tonnes last year, up 118.7 percent from 2008. Evidence of rising demand this year can be seen in stocks of copper in London Metal Exchange warehouses which have fallen 35,400 tonnes since March 1 to 516,925 tonnes.
Benchmark copper on the London Metal exchange surged about 140 percent last year. On Friday it traded around $7,500 a tonne, having hit a 2010 high of $7,796 a tonne on January 7. Also behind the forecasts for a small deficit is the idea that copper production may be prone to disruptions. The earthquakes in Chile earlier this year illustrate the point. The earthquake did no serious damage to mining infrastructure, but it did hit power supplies.
"Refined production remains vulnerable to strikes, equipment failures, low ore grades, and more recently the scarcity of copper scrap," said Justin Lennon, analyst at Mitsui Bussan Commodities. "(However) with the price of copper significantly above the cost of production, miners are quickly increasing available capacities." Forecasts for the market balance range from Deutsche Bank and Mitsui's surplus of 300,000 tonnes to UBS's deficit of 1 million tonnes.