Copper Set to Slide Before Rising in 2013 on Shortfall, RBC Says

Copper prices are set to fall next year before rebounding in 2013 on shrinking inventories, according to RBC Capital Markets.

Copper will average $4.25 a pound this year, $3.75 next year and $4 in 2013, Fraser Phillips, a Toronto-based analyst at RBC, said in a note to investors dated April 8. Prices may reach $4.50 a pound through 2015, according to the note.

“After a substantial deficit in 2010, we forecast a roughly balanced market in 2011 through 2013,” RBC said. “In 2014 and 2015, a growing deficit will push inventories down to minimum levels.”

Copper futures traded on the Comex in New York climbed to a record $4.6575 on Feb. 15 on surging Asian consumption of the metal used in homes, cars and appliances. Demand may outpace production this year by as much as 500,000 metric tons, Andrew Harding, head of Rio Tinto Group’s copper unit, said in an April 6 interview.

Inventories are currently at 6.6 weeks of consumption, compared with 6 weeks at the beginning of 2011 and a so-called critical level of 4.5 weeks, RBC said.

“In the near term, investment demand has pushed prices above the levels we would expect from the fundamentals alone, and we forecast a modest correction in 2012,” the brokerage said. Mine output will grow by 7.9 percent this year, 4.3 percent in 2012 and 6.9 percent in 2013, before slowing to 1 percent in 2014, RBC estimates show.

Mine Investment

Copper mines worldwide are attracting investors on expectation China’s demand for the metal will continue to grow.

Minmetals Resources Ltd. bid about C$6.3 billion ($6.6 billion) for Equinox Minerals Ltd. on April 4 to gain control of Zambia’s Lumwana deposit, Africa’s largest copper mine. Vale SA last week offered to buy South African copper producer Metorex Ltd., while First Quantum Minerals Ltd., which bought Peru’s Haquira copper venture last year, has said it’s interested in acquiring another project in the country.

“Latin America should remain the largest source of mine production, although we expect a resurgence of African production over the longer term,” RBC said.

(Source: http://www.bloomberg.com/news/2011-04-11/copper-set-to-slide-before-rising-in-2013-on-shortfall-rbc-says.html)