Base metals prices may resume their advance in 2011, with copper the preferred pick, after a period of “consolidation” expected over the second half of this year, according Barclays Capital.
“We’re still positive, on copper in particular,” Paul Horsnell, the London-based head of commodities research, said in an interview today, without giving price forecasts. “But we’re saying that the second half of the year is probably more one of consolidation than the very strong recovery from last year.”
The LMEX Index of six industrial metals reached a 20-month high in April, a level not seen since the collapse of Lehman Brothers Holdings Inc. in 2008 pushed the global economy into recession. Copper gained about 30 percent between February’s low and April’s peak, driven by expectations for a recovery.
“It’s unusual that base metals were the first market subsector to recover in this cycle, which is probably why their best bit is over for now,” said Horsnell, who joined Barclays Plc’s investment-banking unit in 2003. “We’re a bit more cautious. We don’t think it’s going to fall away dramatically.”
The LMEX Index has lost 12 percent this year on concern Europe’s fiscal crisis will slow the global recovery and China’s curbs on lending and property speculation will cut demand. Still, three-month copper futures traded today at $6,570 a ton at 12:33 p.m. in London, 30 percent higher than 12 months ago.
“A year ago, there were question marks whether there would be an economic recovery, in particular, the unknown then was how strong Chinese demand for commodities was going to be,” Horsnell said in Singapore. “The transformational bit, certainly for the metals, the concerns were misplaced. China’s demand came out much stronger than anyone had anticipated.”
China’s economy expanded 11.9 percent in the first quarter, the fastest pace in almost three years. Growth will slow to 9.6 percent in the third quarter and 9 percent in the following three months, from 10.5 percent in the second quarter, according to as many as 21 economists surveyed by Bloomberg.
China’s $586 billion stimulus program, which included spending on infrastructure and state stockpiling, helped to drive a doubling of copper prices last year. This year, Chinese authorities have boosted banks’ reserve requirements three times and introduced real-estate curbs to cool asset bubbles.
“In previous OECD recessions you had to wait for the OECD to come out of recession before price recovery could really kick in, whereas now there’s another driver,” said Horsnell, referring to the Organization for Economic Cooperation and Development by its initials. The Paris-based club comprises 31 countries including the U.S., Britain, Japan and Germany, according to its website.