China Likely To Buy More Copper; Supplies Already Tight

ISTANBUL-China is likely to pick up their purchases of copper in the second quarter, at a time when global supplies of the metal is forecast at a deficit of 500.000 to 600.000 metric tons.
The combination is likely to result in copper prices still high, executives at an international conference of metals, said on Thursday. Copper prices recently hit record highs, reaching more than $ 10,000 per metric ton in London and topping $ 4.60 a pound in New York.
China started to buy less of copper in the fourth quarter of 2010 and began selling new tanks and equipment imports fell as a result of rising copper prices, said Andreas Hommert, head of research at Touradji Capital Management.
The world's largest consumer of copper, now may have reached a point where they need to resume their purchases.
"The process of reduction of inventories in China is probably relatively far advanced. Outlet store has about run its course?" Mr. Hommert told the conference of Metal Bulletin.
While China could resume its purchases of copper, the market is likely to experience shortages of metal.
Martín Escudero, executive director of JP Morgan Securities, estimates that the global market will be in a deficit of between 500,000 and 600,000 tonnes in 2011. This will be more pronounced in the second quarter due to seasonal factors affecting stock drawdowns, Mr. Escudero said.
The range is narrower than a Dow Jones Newswires poll of 19 analysts in January, which includes estimates of a deficit of 90,000 tonnes to 825,000 tonnes.
Nikos Kavalis, an analyst at metals consultancy GFMS, said the copper market is likely to be at a deficit until 2013, with chronic shortages in most of 2011 to about 400,000 metric tons. The shortage is likely to reduce about 200,000 tonnes next year and below 100,000 tonnes in 2013, he said.
"The production of new projects is likely to fall further below target," said Kavalis. "The decline in some existing operations will partly offset the increases."
At the same time, outages continue to affect production. Mr. Kavalis said the attacks probably because of higher prices, while technical and operational disruptions can not be excluded. Political risk remains a problem, he said, given the location of certain projects in countries like Afghanistan and Pakistan.
GFMS estimated that less than 600. 000 tonnes of the approximately 800,000 tonnes of planned capacity additions and production forecasts for 2011 will actually occur. For next year, this figure is just over 600,000 tonnes from 1.1 million tonnes by 2013 envisaged and provided for only about 700,000 tons more than 1.7 million tonnes.
With tight supplies and growing demand, copper prices may extend gains, raising concerns about speculators in the market moving.
JPEl Mr. Morgan Squires said the fundamentals of supply and demand remain key factors in the price of copper, the interpretation of which investment decisions were made.
These decisions include the industry in terms of whether to invest in new capacity, as well as the investment community, he said.
The debate over high copper prices has focused on investment flows, Mr. Escudero said. "The argument [that investors disproportionately influence the price of copper] applies in times of high prices, but investors are present in times of low prices."
"The investment flows can influence the dynamics of the market, but ultimately respectful of the underlying fundamentals," said Squires.
Mr. Escudero said prices could rise further, although the unrest in North Africa extending through the Middle East would be "very negative for global growth and copper prices."
"Taking the risk of contagion in the MENA region of the equation, then the copper has a very good opportunity to rise much higher," he said. "I do not think the industry is leading to a large number of shares, global PMI are strong and the best places I've been in years. Copper could see a new record? Without a doubt."

(Source: http://online.wsj.com/article/SB10001424052748704823004576192611371188594.html)