GFMS Expects Copper Near $11,000/Ton

The copper market will remain in deficit until at least the end of 2011, resulting in a record peak in the red metal's price near $11,000 a metric ton in the second half of the year, London-based metals consultancy GFMS Ltd. said.

The group warned, however, that the metal could be vulnerable to "a significant correction" before then as the market keeps an eye on civil unrest in the Middle East and political and economic uncertainties in the euro zone. Jitters over the possibility of further monetary tightening in China, the world's largest consumer of base metals, will also continue to weigh.

"Ongoing improvements in the market's fundamentals have, to some extent, already been priced into levels not far off $10,000/ton," GFMS said in its 2011 Copper Survey. "In addition, the emergence of negative news for copper consumption in the near future remains possible."

"That said, bargain-hunting purchases and restocking would once again provide a floor for prices," which will remain comfortably above $8,000/ton, GFMS said.

On Wednesday, copper was trading at $9,500/ton on the London Metal Exchange.

Any sharp pullback would also likely to be short-lived and "copper prices should subsequently resume an upward trajectory, reaching new all-time highs approaching $11,000/ton before the end of the year," GFMS said.

According to the report, refined copper demand soared more than 11% in 2010, to 19.382 million tons. China continued to record strong demand in terms of tonnage, despite growth slowing from the high rates seen in recent years.

Developed economies also contributed strongly to the increase as the majority of copper's end-user markets, including North America, the euro zone and Japan, recovered from 2009 lows, GFMS said.

Refined production increased by 3.8% in 2010 to 19.096 million metric tons. The rise was largely driven by a jump in secondary supply, with high commodity prices bringing more copper scrap into the market.

Global mine production increased by less than 1%, or 121,000 tons, to 15.926 million tons—with production down for a second consecutive year in the U.S. and Indonesian output also recording a marked fall.

GFMS estimated the market was in a gross deficit of 286,000 tons in 2010, compared with a revised surplus of 987,000 tons in 2009.

While it expects production to accelerate in 2011 on the back of higher metal prices, GFMS said it "finds it difficult to envisage that it will manage to outpace demand."

"As such, our projections see the market remain in deficit at least through to the end of 2011," it said.