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Copper May Average Near $4 Next Year as Demand Climbs, Codelco CEO Says

Codelco, the world’s largest copper producer, expects prices to average near $4 a pound next year as demand rises, Chief Executive Officer Diego Hernandez said.

The Santiago-based company sees a deficit of about half a million metric tons of copper in 2011 as demand gains between 4 percent and 5 percent, Hernandez said today in the Chilean capital. That follows a 10 percent increase this year, he said.

“That scenario asks for prices probably going on the upper level of 3 dollars and close to 4 dollars,” Hernandez said in an interview. A further financial crisis in Europe or a slowdown in China could change the prediction, he said.

Copper rose to a 31-month high in New York and reached a record in London as an extension of U.S. tax cuts reduced concern Europe’s debt crisis may spread. Supply will lag demand for at least the next two years, with prices peaking at new highs, according to Trafigura Beheer BV, which considers itself the world’s second-largest trader of industrial metals.

Demand will outpace supply by 367,500 tons next year, enough for wires, pipes and appliances in about 1.8 million U.S. homes, according to the median forecast of 12 analysts surveyed by Bloomberg. Stockpiles may drop to an all-time low of less than one week’s usage, according to Michael Widmer, a London- based metals analyst at Bank of America Merrill Lynch.

Copper for March delivery added 4.05 cents, or 1 percent, to $4.0485 a pound at 1:52 p.m. on the Comex in New York. Prices reached $4.1315, the highest level since May 5, 2008, when they touched a record $4.2605.

Stockpiles Shrink

Copper stockpiles in London Metal Exchange warehouses have shrunk 30 percent this year, dropping to 351,375 tons, the lowest level since October 2009, exchange data show. Inventories monitored by the Shanghai Futures Exchange fell last week for a second week.

The start of exchange-traded funds, or ETFs, backed by copper may deepen shortages next year by about 200,000 tons, Hernandez said. Copper ETFs may keep pushing up prices, Gu Liangmin, who heads China Minmetals Nonferrous Metals Co.’s copper department, said Dec. 2 in Santiago.

The global shortage of copper is growing because new mines are of lower quality that in previous decades and after investments were delayed because of the 2008 global financial crisis, Hernandez said.

Codelco is proceeding with a plan to spend $15 billion in the next five years to ramp up production from its aging mines based in Chile, Hernandez said.

To contact the reporters on this story: Matt Craze in Santiago at mcraze@bloomberg.net Michael Smith in Santiago at mssmith@bloomberg.net

To contact the editor responsible for this story: Dale Crofts at dcrofts@bloomberg.net

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