If there is one base metal that in recent days has exhibited resilience, it is copper. Even as the short-term sentiment towards the metal has turned negative due to soft Chinese buying and rising LME stocks, it has pulled down the price, as usually happens.

The market is holding up reasonably well. The latest copper market forecast for 2011-2012 from International Copper Study Group that met in Lisbon late last week should be viewed in this context. According to thier data, global growth in copper demand for 2011 is expected to exceed that in production. Annual production deficit estimated at about 250,000 tonnes of refined copper in 2010 is expected to be about 380,000 tonnes in 2011.

Production

As a result of higher prices, production increases are more likely to come from a ramp-up or restart of facilities closed or curtailed in the wake of the 2008 economic crisis, and to a lesser extent from new operations, the ICSG report pointed out adding that industrial demand in 2011 in all major consuming regions is expected to continue the upward trend that began in 2010 and exceed the growth of refined production.

The report recognises that numerous factors — including the earthquake and tsunami in Japan, political disturbances in West Asia and North Africa, changes in trade and monetary policies and uncertain copper market off-take in China-dominated Asian market — create uncertainty, and that the global market deficit could vary from the projected figure. Mine production, although projected to increase by 4.6 per cent — equivalent to about 740,000 tonnes, may actually turn out to be lower than projected as disruptions from project delays, technical problems, and labour and political unrest are likely to continue to stymie output growth. So, refined copper production may rise by about 3.5 per cent to 19.7 million tonnes. The following year, in 2012, production may be up 5 per cent due to ramp-up of projects.

Buy on price dips

Global refined copper usage in 2011 is expected to expand by 4 per cent to above 20 million tonnes, and a similar growth rate is projected for 2012 as well. Clearly, ICSG projections are qualified. Some experts predict that mine supply may remain flat, with the risk of a decline. The physical market indicators too are beginning to improve. Even assuming demand in China and Japan slows down, European and the US demand is clearly on the rise. Overall, the global copper market for the whole of 2011 looks tight, though the deficit may not be as large as earlier foreseen. Some private estimates place the deficit at 740,000 tonnes for 2011 versus 423,000 tonnes for the previous year.

Although pessimism pervades in the short term, one can safely expect that fundamentals will catch up and push copper prices higher in the medium term. Flow of speculative funds can exacerbate the situation. Many analysts have already revised up their price forecast for the rest of 2011 and whole of 2012. Copper's upside potential can take prices to well over $11,000 a tonne from around $9,800 a tonne now. Buying on price dips would be a good strategy.

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