Aug. 3 (Bloomberg) -- Chile's Codelco, the world's biggest copper producer, increased its forecast for the price of the metal because mining companies have failed to boost output fast enough to keep pace with demand in China.

Codelco Executive President Juan Villarzu, 61, said copper may average $1.45 to $1.50 a pound this year, compared with his prior estimate of about $1.30 in March and $1.20 in January. The average so far this year is $1.48.

``We're going to have sustained demand,'' Villarzu said yesterday in an interview at the state-owned company's Santiago headquarters, where halls and elevators are lined with the shiny orange metal. ``There always was a sort of bet that this would be a short-term phenomenon, so supply didn't react.''

Copper reached a record $1.6675 a pound yesterday in New York, boosted by concern about possible disruptions at mines, the lowest stockpiles in three decades and purchases by speculators, Villarzu said. Codelco, which forecasts a drop next year to $1.30, never expected prices to get so high, he said.

The market reflects strong demand and ``expectations that any stoppage of a large mine could create a supply problem,'' Villarzu said. He dismissed speculation that inventories are being withheld in a bid to boost prices.

Some analysts also have increased their estimates for copper, which is used in wiring for appliances, cars and homes, and in pipes used as plumbing. Prices are up 27 percent in the past year and have doubled from two years ago.

Higher Forecasts

Greg Barnes, an analyst at Canaccord Capital Inc., Canada's largest independent stock brokerage, on July 19 raised his forecast for this year to $1.44 from $1.33, and said copper next year will average $1.20, up from an earlier estimate of $1.15. The Chilean Copper Commission, a state-run research group, last month increased its 2005 forecast by 11 cents to $1.48.

``Demand is surprisingly strong, supported by China,'' the world's largest user of copper, said Mariano Ingaramo, an analyst at Standard & Poor's.

Rising prices have led companies to open mines that were shuttered when prices were lower, which will increase supplies of the metal, Ingaramo said from Buenos Aires in a telephone interview. He expects prices to fall to about $1.50 a pound later this year.

Record-high prices won't last, Villarzu said.

``I have the impression that the second half could give us surprises, that stockpiles recover, that prices start to normalize,'' Villarzu said, adding that prices may move closer to $1.40. ``This price clearly doesn't respond to mid-term conditions of supply and demand.''

Demand Outlook

Outside of Asia, Codelco doesn't see very strong demand, he said. The European market is ``weak'' and U.S. demand is ``normal,'' he said.

``That's another reason to think that at some point, when there is more security with respect to supplies, and stocks start to rise, the drop will be fast,'' Villarzu said.

Supplies of the metal probably will match demand this year and rise to create a ``small'' surplus next year, when ``demand will still be very strong,'' Villarzu said.

Demand outpaced supply last year by 575,000 metric tons, a third year of shortfalls, according to the Chilean Copper Commission, which forecasts a surplus this year of 41,000 tons.

To contact the reporter on this story: Heather Walsh in Santiago at hlwalsh@bloomberg.net

Last Updated: August 3, 2005 00:56 EDT