Macquarie Research foresees higher prices for copper in coming years as mine output is unlikely to increase as quickly as previously thought and global demand, led by China, will remain robust, it said in a report Monday.
The Australia-based research group picked copper as the base metal of 2008, and forecasts an average price of $7,000 per metric ton for 2007, up 22% from its previous estimate, rising to an average price of $7,165 in 2008 before steadily declining until 2011.
"We have become increasingly bullish about the copper outlook for the 2008-2011 period due to the pushing back of projects we had previously included in our base-case forecasts and because of increased uncertainty about the timing of others," Macquarie said.
Macquarie expects demand in the U.S. to recover from its sluggish pace toward the end of the year, although it now believes U.S. copper demand will not be as strong over the next five years.
It raised its demand growth rates for China and other emerging countries, which it believes should limit inventories from rising above four weeks of consumption before 2011.
Macquarie said it expects lead and zinc prices to remain underpinned in the short-term by their low inventory levels, before easing in 2008.
It increased its 2007 forecast for lead by 20% to $1,936/ton, and more than doubled its supply deficit estimate to 70,000 tons. However, since temporary supply problems at lead mines such as Magellan Metals and Xstrata PLC's (XTA.LN) Mount Isa mine in Australia have been the leading drivers behind lead's high prices this year, Macquarie expects prices to ease to $1,433/ton by 2008.
The group raised its 2007 price forecast for zinc by 5% to $3,950/ton. Macquarie expects prices to ease afterwards, owing to new projects in South America coming on stream between 2007 and 2009.
Macquarie is less bullish on nickel and aluminium in the next two years. It expects nickel prices to trend lower the rest of the year as the record high prices bite into demand from the stainless steel sector and continue to spur rapid growth in China's nickel pig iron output.
Nevertheless, stocks should remain extremely tight by historical standards, and prices in 2007 should average only slightly below current levels at $40,124/ton, before falling sharply to $29,211/ton in 2008.
Macquarie said aluminium prices will remain on their steady but unexciting sideways path from 2007 to 2011. While Chinese aluminium and aluminium products output will probably continue to rapidly expand, demand, especially Chinese, has been surprisingly strong, Macquarie said.
"We would not go so far as to say that we are turning bullish on aluminium, but we think that it will come under less downward pressure than we had previously believed, and we are forecasting a flat profile for prices for the next five years," it said.
On Monday, three-month copper was trading at $7,447/ton, up $7 from the London Friday afternoon kerb; lead was last quoted at $2,350/ton, down $21; zinc was down $40 at $3,760/ton; nickel was untraded in Asia and last quoted at $46,900/ton, down $600; and aluminium was $1 higher at $2,788/ton. – Hoovers
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