As investment flows and increased risk appetite driven by U.S. quantitative easing and the emergence of ETFs have pushed copper prices higher than the fundamentals suggest in the near term, RBC Capital Markets is warning that a correction is possible in the near term. However, copper remains the firm’s preferred base metal and it raised its price forecasts to reflect an improving supply-demand balance outlook during the past three months.
RBC now forecasts an average price of US$3.38 per pound in 2010, US$3.75 in 2011 and 2012, and US$4.00 in 2013 and 2014.
Global copper demand should rebound to 7.9% in 2010 as a result of modest growth in China and a sharp restocking-driven recovery in the developed world, the analysts said in a report. They forecast further growth of 5.5% in 2011 and 5.7% in 2012.
However, RBC does not foresee enough supply by 2013 to meet its base case demand forecast. As a result, the analysts anticipate constrained demand growth at an average of roughly 3.0% in both 2013 and 2014.
In terms of demand, they estimate that the dramatic decline in refinery capacity utilization rates in 2009 has been followed by a modest rebound in 2010. However, due to a shortage of concentrate the analysts do not expect refinery capacity to return to full effective utilization rates until at least the end of their forecast period. “Mine capacity remains the bottleneck.”
The firm forecasts a rebound in global refined copper production of 5.6% in 2010, 5.6% in 2011 and 5.4% in 2012.
“The copper market remains tighter than the other base metals,” RBC said. “There is little excess mine capacity and utilization rates remain high, supporting stronger pricing.”