Uncertainty about the global economy and sporadic demand from China are expected to keep copper prices soft this year, though analysts are slightly more optimistic than they were earlier this year, a Reuters poll showed.
The average forecast of 37 analysts in the survey, carried out in recent weeks, called for cash prices for the metal used in power and construction to average $8,445 a tonne in 2012, rising to $8,818 in 2013. Not all contributors responded to all questions.
The forecast was 1 percent higher than the estimate in a January Reuters poll, when analysts expected an average 2012 price of $8,369, after the metal rallied in February in tandem with a rise in stocks and other risky assets.
But the new forecast was still down 4 percent from an average of around $8,812 a tonne for the London Metal Exchange's (LME) cash contract in 2011.
Demand from China, which accounts for as much as 40 percent of global copper consumption, has been sluggish since the Lunar New Year celebrations in late January as uncertainty about the outlook for growth and a cooling property sector are likely to hit demand for metals.
“We are into the second quarter, and the signs still are that by China's standards, demand for base metals is on the muted side. It is not falling, but it is just not growing at the rate that we have become accustomed to,” Stephen Briggs, metals analyst at BNP Paribas, said.
“Having massively replenished inventories in the first quarter of the year ... it is likely that net Chinese imports are going to be relatively muted in the second quarter.”
China's copper imports rose 13 percent to a record high in December and have since dropped off. It China is unlikely to restock the metal again on such a large scale in the short term.
The country's economy grew at its slowest in nearly three years in the first three months of 2012, and the weaker-than-expected reading has raised investor concerns that a five-quarter long slide in the growth rate has not bottomed and that more policy action would be needed to halt it.
Benchmark copper on the London Metal Exchange rose more than 11 percent in the first quarter, hitting a 2012 high of $8,765 a tonne in early February, but prices have since fallen to around the $8,000 level. On Friday it traded at $8,094 a tonne.
Worries about the outlook for the global economy, with persistent debt problems in the euro zone and a wobbly recovery in the United States, led to copper's first annual fall in three years in 2011.
“The macro environment is still very much the driver in the short term. The market is still very cautious about the recovery that is going on, and there is a lot of uncertainty as to the sustainability of it,” Gayle Berry, an analyst at Barclays Capital, said.
Even with the easing demand picture, production is expected to fall short of demand by 180,000 tonnes this year, with the deficit narrowing to 7,000 tonnes in 2013 as new capacity comes on stream. Analysts polled early this year had expected a market deficit for copper of 101,000 tonnes in 2012.
“Less is being produced than being consumed again this year. Six months from now inventories are likely to be lower than they are today, and that could give a final flurry to copper prices before downward pressure next year,” Briggs said.
OTHER METALS
For aluminium, cash prices are expected to average $2,250 a tonne this year, down 6 percent from an average of around $2,398 in 2011 and almost flat from a forecast of $2,257 earlier this year, as the industry grapples with high energy costs.
The market surplus is seen at 445,000 tonnes this year, narrowing to 400,000 in 2013, according to an average of 18 forecasts.
Stocks of aluminium in LME warehouses have hit record highs above 5 million tonnes, but only a fraction is available to the market due to bank financing deals, which have locked up about 70 percent of the metal sitting in sheds.
“As the global economy recovers in 2013, aluminium stocks in financing deals, which are currently being held off market, may re-enter the market creating headwinds to prices,” James Glenn, an economist at National Australia Bank, said in a note.
Tin is expected to be the only other metal apart from copper to register a deficit this year, of 5,000 tonnes, helping put a floor on prices, which are forecast to average $23,663 a tonne in 2012, up from a previous forecast of $22,125. In 2011 cash tin averaged $25,961 a tonne.
The nickel market is forecast to see a surplus of 36,000 tonnes in 2012, rising to 42,000 in 2013, due to diminishing risks to delays in new high-technology nickel projects this year.
Cash nickel is seen averaging $19,988 this year, compared with $19,875 forecast earlier this year. It traded at an average of $22,843 in 2011. - Reuters