Supply/Demand Picture Has Analysts Bullish on Copper


"Miners won't be able to ramp up output enough to keep up with demand."

Copper's supply/demand picture may become so tight that many analysts and institutional investors say it is one of the commodities on which they are the most bullish for 2011.

Copper has already staged an impressive rally from the commodity-wide sell-off that occurred when the global financial crisis hit in 2008. While Western economies were weak, copper demand remained strong in emerging economies such as China, the world's largest consumer of the metal. Whenever recovery picks up in the West, demand should rise further.

Meanwhile, analysts say, mining companies will not be able to ramp up output fast enough to keep up with demand, leaving a global supply/demand deficit for 2011.

"It's our top commodity pick for next year," said Bart Melek, global commodity strategist with BMO Capital Markets.

The same was true for many institutional investors surveyed by Barclays Capital during an investor conference in December. More than 300 participants were asked to rate which commodity or sector will perform best in 2011, and copper got the highest rating with 26%.

"We expect to see pretty tight market conditions for copper next year," Melek said. "The crux of the story is that we are expecting supply to be outstripped by demand growth."

BMO projects a 2011 copper deficit of around 380,000 metric tons. Standard Bank analyst Leon Westgate looks for a deficit of 385,000 metric tons, widening to 562,000 in 2012.

"I think the real tightness in the market is going to come in 2012," Westgate said. "While I'm bullish next year, I'm super bullish for 2012."

BNP Paribas analyst Stephen Briggs looks for a supply deficit of 200,000 metric tons this year, widening to 500,000 in 2011.

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