Demand-supply mismatch to keep prices high

IN FOCUS/ COPPER

Given the strong fundamentals, a weak dollar and investment by funds, the red metal prices are seen rising in the next few months.

Copper prices on the London Metal Exchange fell last week due to fund selling, traders said. The funds were selling to book profits, they said.

Copper three-month futures on the London Metal Exchange hit an all-time high of $3,338 a tonne on Mar. 12 only to register a steep decline of 2.2 per cent to touch $3,193 a tonne on March 14.

Analysts said prices will again start an upward trend as the fundamentals are extremely strong. They have pegged resistance at over $3,300 a tonne.

Driven by China, the demand for copper continues to increase unabated.

Chinese copper requirements are huge because of growing industrialisation, urbanisation, and consumerism. The country also needs large quantities of industrial metal as it is gearing up to host the 2008 Olympics Games.

Chinese hunger for base metals in general and copper in particular has driven base metal prices higher. The country clocked a 9.1 per cent economic growth in 2004 and is likely to overshoot the 8.5 per cent growth target set for this year.

According to the country's latest data, its economy grew at 9.5 per cent during January-March, which indicates that the dragon's growth momentum was sustaining and China will continue to buy large quantities of copper among other metals.

Other developing countries such as India, Brazil along with North America and Europe are also chipping in to boost demand for the metal.

On the other hand, the supply scenario is bleak, as significant rise in mine output is unlikely to happen before the year-end, analysts said.

According to industry reports, it now takes longer to develop new mines due to rising production costs, and stringent environmental, and labour regulations.

"Copper supplies are deficit and reported inventories have fallen to dangerously low levels, enough only for two days' of global consumption," warned Ingrid Sternby, analyst with Barclays Capital, in a report.

Trade data shows that total copper stocks held by various exchanges "" London Metal Exchange, Shanghai Futures Exchange, and the New York Commodity Exchange""fell by 38,318 tonne to 100,927 tonne at the end of March from the previous month.

Global copper deficit forecast by the International Copper Study Group is at 259,000 tonne for 2005 as against a deficit of 719,000 tonne in 2004.

Though the deficit is lower compared with 2004, the shortage will have a definite bearing on the prices, said an analyst at an Indian exchange.