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Copper Will Lead Base-Metals Rally on Shortage, Brook Hunt Says

Copper will lead a rally in base metals this year as increased consumption in China reduces inventories and higher prices encourage stockpiling, according to researcher Brook Hunt, a Wood Mackenzie company.

“Fundamentally, the market’s tight,” Julian Kettle, head of metals research, said in an interview in Singapore, predicting that cash copper may average $9,700 per ton this year compared with $7,543 in 2010. Kettle also backed nickel and lead.

Copper, which reached a record last month, is expected to have a 570,000-ton shortfall this year as China’s demand grows 6 percent, according to Brook Hunt. The metal, used to make wires, surged 30 percent last year as the global economy recovered from the worst recession since World War II. The International Copper Study Group is predicting a 435,000-ton deficit this year.

“There’ll be a shortage of copper,” said Kettle, a metallurgist who’s been at Guildford, England-based Brook Hunt for more than two decades. “In the short term, the market is going to remain tight and fundamentally it’s strong.”

Three-month copper on the London Metal Exchange, which reached an all-time high of $10,190 on Feb. 15, traded today at $9,495.75, down 1.1 percent this year. Lead futures traded at $2,630 per ton, up 3.1 percent in 2011. Nickel has advanced 5.5 percent this year and was at $26,100 per ton.

Brook Hunt joins Barclays Capital and Rio Tinto Group in forecasting a copper shortfall as mining companies fail to keep pace with demand. There’ll be a global deficit until 2014, Standard Chartered Plc’s Michael Haigh said last November, predicting that the metal will “perform incredibly well.”

Largest User

China, the world’s largest copper user, is aiming for annual economic growth of 7 percent in the period to 2015, down from the previous 7.5 percent, according to the nation’s latest five-year plan, which sets development goals.

“The five-year plan’s just come out, lots of positive things in there but a slight shift,” said Michael Sinden, head of metals markets at Brook Hunt. “It’s going to be a slower pace but still the volume is there.”

China will build 36 million units of social housing, or affordable homes, over the five years, the National Development and Reform Committee said on March 6. Vehicle sales will grow 10 percent to 15 percent this year after jumping 32 percent to 18.06 million vehicles in 2010, the China Association of Automobile Manufacturers forecasts.

‘Tier-Two Cities’

“As opposed to five-star apartment buildings, we’re shifting more to the internal, tier-two cities, social housing, so it’s not smaller or greater it’s just a little bit different,” said Sinden on March 22. “On the auto motor side, you’re going to end up with a lot of cars, so that’s going to sustain your copper, zinc and aluminum demand.”

Copper demand in China may expand 8 percent, according to an estimate from Beijing Antaike Information Development Co., China’s state researcher. Refined-copper consumption growth in 2010 was forecast to be 11.5 percent, Antaike’s senior analyst Yang Changhua said in November.

“High prices at the moment will encourage supply,” said Kettle. ‘We’re looking at supplies moving significantly ahead of demand round about 2015 and there will be a price response,” said Kettle, predicting that the market may move toward the so-called incentive price, which is $5,000 to $6,000 a ton.

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