CHINA’S rampant growth has fuelled one of the greatest booms in natural resources and has helped to drag base metals into the limelight.
The Chinese hunger for raw materials, which feed its ambitious growth targets, has pushed prices of base metals to extraordinary levels. But as demand surges, concern is being expressed about supply.
Copper is essential for plumbing and wiring, and is the principal element in brass. The metal is also a key material in electronics.
The price of copper on the London Metal Exchange has risen by more than half during the past year — a surge underpinned by a worldwide shortage.
Jim Lennon and Adam Rowley, commodities analysts at the Australian investment bank Macquarie, forecast copper consumption of 12.2 million tonnes this year. But they estimate that supply will reach only 11.6 million tonnes, leaving a 660,000- tonne shortfall. Last year’s deficit was 304,000 tonnes.
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Bloomsbury Minerals Economics, the consultancy, is even more bearish, predicting a shortfall of almost one million tonnes.
The Macquarie analysts say that this year’s deficit and the resulting high copper price have prompted a big increase in production that should continue into next year.
They forecast that next year’s deficit should be only 96,000 tonnes, with production outstripping demand from 2007.
Mr Lennon and Mr Rowley said: “Through the first half of 2005 we expect prices to come under downward pressure as the deficit shrinks dramatically. We are not talking about a (copper price) collapse, though — the extremely low level of stocks should prevent that.”
They say that the price will average $1.20 a pound next year and $1.05 in 2006.
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John Meyer, an analyst at Numis Securities, said that even though prices could pull back in the short term, it was likely that they would remain above $1 a pound.