Punters pin hopes on sustained growth

IN FOCUS/COPPER

Outlook for copper will continue to be positive on all fronts - prices, production and demand. World copper prices should remain positive in 2004 with stocks likely to continue falling as consumption exceeds production. China will continue to be the booster in the global copper market.

The International Copper Study Group (ICSG) has forecast that China's refined copper consumption will grow to 3.2 million metric tons, from a projected 2.9 million tons in 2003. This is almost double the growth rate in US and Europe.

ICSG said US consumption would rise 4.8 per cent to 2.38 million tons in 2004, from 2003's estimated 2.27 million tons, while demand in Europe was likely to grow 4.5 per cent to 3.92 million tons, from 3.75 million tons in 2003.

Overall, ICSG has forecast that the 2003 supply deficit of global refined copper will continue into 2004. In its December monthly report, the group said the global market showed a supply deficit of 389,000 tons in the first nine months of 2003, from a 83,000-ton surplus a year earlier.

Copper prices in 2004 were estimated to average $ 2,180 a metric ton, or 99 US cents a pound, up 23 per cent from the 2003 average but only just above the current level of $ 2,173/ton. This clearly reflects speculative investment in recent months.

The Australian Bureau of Agricultural and Resource Economics (ABARE) said recently that rising prices were likely "to encourage some dormant mine capacity to be brought back online," slowing the decline in metal stocks.

"Abare's leading indicator model, in the absence of speculative buying activity, suggests an average price of US$2,137 a ton (97 U.S. cents/lb) for the March quarter 2004," the forecasting agency said in its report for the quarter through December.

Copper, which was almost singularly supported over the last two years by strong consumption growth in China, can look forward to further gains in 2004 as US and European economies pick up, analysts said. China will continue to remain the big-growth market with the electricity sector driving demand.

With global consumption forecast to rise 4 per cent-7 per cent in 2004, the market consensus is that the 2003 global supply deficit should persist or even widen in 2004, extending the metal's stellar performance.

Demand from China and hopes of US economic recovery have pushed copper to its highest levels in over eight years.

The benchmark three-month contract on London Metal Exchange jumped nearly 45 per cent over the year to peak at $2,250 a ton on December 24, a level last seen in mid-August 1997.

Prices could rise further in 2004, to peak around $2,400- $2,650/ton, said some analysts. Others said it could reach $2,000-$2,315/ton, up 13.6 per cent-31.5 per cent from $1,760/ton in 2003.

Macquarie Bank has forecast the price to average $2,315/ton and peak at $2,530-$2,650/ton, a research report from a foreign brokerage house said.