From:
http://www.kitco.com/reports/KitcoNews20101217AS_outlook.html
Tight Supply/Demand Picture Leaves Analysts, Investors Bullish On Copper
17 December 2010
By Allen Sykora
Of Kitco News
http://www.kitco.com/
(Kitco News) - 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%, followed by grains at 23% and crude oil at 19%.
Analysts have been releasing commodity forecasts for 2011 this month, and Goldman Sachs, Morgan Stanley and Barclays Capital are among those listing copper as one of the markets they expect to fare best.
“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.”
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“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.”
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Analysts with Goldman Sachs, in a research report, said base metals such as copper are even closer to a “structural bull market” than oil because of supply issues. In the case of crude, declining inventories and rising prices may be followed by OPEC producing from spare capacity. But for many base metals, producers are already at full capacity and existing inventories are the only “spare,” Goldman said.
In fact, Goldman said, nearly all exchange inventories may be exhausted over the course of 2011, forcing the market into demand rationing.
“We are expecting [physical] copper stocks to fall to the lowest tha they’ve ever been,” Norrish said.