The copper market is beginning to price in “unrealistically high expectations for global economic activity”, says Daniel Brebner, analyst at Deutsche Bank, who cautions that weaker prices could last well into mid-2010.
Deutche says that China’s copper imports will be “meaningfully lower” in 2010 compared with this year and that western world restocking will be modest at best, and largely complete by April.
But despite the risk of a near-term correction, Deutsche says copper prices should rise 11 per cent next year because of long-term structural constraints on supply and a continuation of investment flows into the market.
“We view copper as one of the few commodity markets that has properties of true scarcity,” says Mr Brebner, who expects copper to average $5,731 a tonne in 2010 from $5,158 a tonne this year.
Deutsche says that only a thin pipeline of quality copper projects will mature to full production in the next decade because of underinvestment in new mines and a lack of new development opportunities.
Much of the growth in global copper output has come from a few very large mining operations – the “Big 12” – but these are no longer contributing meaningfully to supply.
“The problem for the market is that there are no obvious heirs to these ageing giants,” says Mr Brebner.