Copper supported at current levels but upside 'constrained'

 A growing market deficit for copper in the second half of this year will underpin current price levels, but may not prove the incentive needed for a spike in prices, GFMS analyst Mark Fellows said on Tuesday.

Copper prices set a new record above $10 000/t in mid-February, but have dipped back and the metal was trading at around $9 831/t on Monday morning, amid concerns that turmoil in North Africa and the Middle East will push oil prices up, weighing on economic growth and demand for industrial metals.

Fellows said he expects a “small but quite significant” price correction during the first half of 2011.

However, GFMS expects the copper deficit will increase in the second half of this year and is forecasting continued deficits until 2013, he said in a presentation at the annual Prospectors and Developers Association of Canada (PDAC) convention.

However, the size of the deficit will not be as sharp as previous market imbalances, including the size of the market surplus in the 2008/09 period and the deficits that preceded it, he said.

“We do remain pretty positive about the prospect of copper prices over the next three or four years.

“But the upside from here is somewhat constrained,” Fellows said. “There's good support, but there's also resistance above current levels.”

The industry has developed a strong project pipeline, with the potential for an additional 1,8-million tons a year of capacity by 2013, he said.

But Fellows commented that experience has shown the difficulties of getting mines into production and then running them at planned capacity means the reality will likely be markedly lower.

As a result, GFMS is forecasting less than 800 000 t/y of additional copper mine capacity by 2013.

“But that said, at current price levels there is tremendous incentive for producers to increase output where possible,” Fellows said.

“So we are seeing an industry that is really applying all the levers available to it to increase output, but the extent to which that's actually possible is somewhat reduced.” (miningweekly.com)