The copper mining industry will not meet global demand for 2011 or next year because demand is growing faster than supply. The copper market is facing a widening deficit until new supply comes on stream in late 2013.
Walter de Wet, Standard Bank Group's Head of Commodity Research, says: "After last year's deficit, we project the deficit to grow to 385 000 metric tonnes for 2011 and 562 000 for 2012, so clearly demand is growing faster than supply and will remain strong until 2013. This may result in global reported stocks drawing down to less than one week of consumption by end-2012. Even at that stage we don't see demand falling, but rather a case of supply starting to catch up with demand as high prices stimulate new projects."
China and other emerging markets especially in Asia are driving the increasing copper demand where pricing is projected to average US$9 200 per metric tonne in 2011 and US$10 000 per metric tonne in 2012. Asia currently accounts for 55% of total global demand.
Of all the base metals, copper has the most bullish outlook with tin a close second. Standard Bank Group has largely been accurate in correctly forecasting base metals. For instance, its forecast for copper of $7,375/ton average price throughout 2010 was just 2.2% short of the eventual actual figure of $7 543.
"If we look at the break-even copper price for the most marginal of mines, they're all making good profits at the current level," says De Wet.
"Fundamentals and strong investor interest are likely to keep prices on an upward path overall, though we expect there to be steep corrections and pauses for consolidation along the way. Volatility is likely to remain high."
This will present interesting buying opportunities, he says.
The rising copper price is expected to parallel the growing commodity deficit, likely to reach a peak in 2011 during the second quarter with China in particular re-stocking, but with the most severely tight market occurring during 2012.
Supply remains constrained. New copper projects are at various stages of development, but considering they take 3-4 years to come on stream, they will not alleviate the deficit or affect the copper price during the next two years. These projects are in the major copper producing countries like Chile, Zambia, the Democratic Republic of Congo, Peru and China.
On the demand side, there is no let-up in the growing demand. "We're continuing to see good growth in copper consumption from Asia, particularly China, and don't expect to see any slowdown in this throughout 2011, and thereafter only a slight slowdown in 2012," explains De Wet. In addition, current low demand from the US and Europe is expected to begin picking up later this year.
"These twin themes of strong infrastructure development in emerging markets, and a resumption in manufacturing growth in developed markets are strongly supportive of copper consumption and a rising copper price," he adds.
Although austerity rather than stimulus will be the main theme in Europe this year, modest growth will nonetheless be driven by Germany. In addition, the US economy is carrying good momentum into 2011. The big swing factor will be China, which is believed to be fairly destocked of copper. "The government's infrastructure spend could be front-loaded within its current five-year plan, which means that we can still expect to see restocking in the first half of 2011," explains De Wet.
Standard Bank Group facilitation of Woolworths' ground-breaking acquisition wins Deal of the Year ....
Standard Bank Arranges USD 1.25 Billion Eskom Bond Sale to International Investors