Copper prices may fall more than half by 2013

Copper prices will probably decline by more than half within the next six years, as supplies of the metal outpace demand, said John Tumazos, senior vice-president at Prudential Equity.

Copper prices may fall to an average of $1.40 a pound in 2013 from $3 a pound in 2007, Tumazos said. Prudential Financial estimates copper averaged about $3.08 a pound in 2006.

"I expect gradual increases in supply and a gradual rebalancing of the copper market,'' Tumazos, who is also a senior metals and paper analyst at Prudential Financial, said today in a phone interview from New York.

Copper gained 40 per cent last year in New York, the fifth straight annual increase, because of supply disruptions in Latin America and rising demand in China, the world's fastest growing economy. Investment funds have also stepped up purchases of the metal, helping to fuel a fourfold price increase since 2002.

Average prices may fall to $2.50 per pound in 2008, before slumping to $2 in 2009 through 2012 and $1.40 in 2013, Tumazos said. He expects a supply surplus each year starting in 2007. The metal has fallen 37 per cent from a record $4.04 in May.

Production
Global copper output is expected to increase, Prudential Financial said. Chile, the world's largest copper producer, will likely boost output of the metal by 19 per cent to about 5.6 million tonne a year in 2010, while output in the former Soviet republics that make up the Commonwealth of Independent States, or CIS, will hover at 1.4 million tonne a year, Tumazos said.

Peru, which is forecast to boost its copper output by 61 per cent to 1.6 million tonne a year by 2010, will replace CIS as the world's second-biggest producer of the metal. Mexico's output will rise by a third this year to 400,000 tonne, he said.

Copper demand is forecast to rise 2.4 per cent in 2007 to 17.3 million tonne and by about 4 per cent annually through 2010, according to the Prudential Financial estimates. Supply may rise 4.7 per cent in 2007 to about 17.5 million tonne, followed by an increase of 4.6 per cent to 5.7 per cent each year through 2010.

Half of all copper is sent to Asia, including 20 per cent to China, Tumazos said. The US buys about 13 per cent of the 17 million tonne of copper sold annually, while Europe accounts for about 20 per cent of global demand.

Stockpiles
Stockpiles at warehouses monitored by commodity exchanges in London, Shanghai and New York expanded 60 per cent last year to 245,015 tonne, the highest since June 2004, according to data compiled by Bloomberg. Inventories monitored by the Comex division of the New York Mercantile Exchange have almost quadrupled in the past year.

"The rise in inventories seems to me seasonally normal, because it's rather normal for inventories to build up in the second part of a year, particularly in Thanksgiving-Christmas season,'' Tumazos said.

Stockpiles monitored by the London Metal Exchange "fell today for the first time since December 19, and it's possible that this signals the beginning of the transition into the spring season, when business is stronger.''

The biggest jump in copper inventories is in the US after some automakers closed their plants for three weeks in December instead of the usual one week, he said.

"Inventory patterns will improve after the holidays,'' Tumazos said. "There will be a rebound in price soon.''

Copper futures for March delivery rose 2.8 cents, or 1.1 per cent, to $2.5560 at 12:55 pm on the Comex division of the New York Mercantile Exchange. Prices yesterday touched $2.47, the lowest since April 3.