Date:25/10/2005 URL: http://www.thehindubusinessline.com/2005/10/25/stories/2005102501241300.htm

Back Surplus likely in copper next year

G. Chandrashekhar

Mumbai , Oct. 24

WILL the global copper market move into surplus in 2006 from a state of deficit in the current year? There is a strong possibility of this happening, experts believe.

In the current year, both demand and supply side factors have played a role in propelling the copper market to record levels.

Tightening supplies because of production losses and falling warehouse inventory have combined with huge surges in consumption demand that forced consumer de-stocking. The role of funds cannot be discounted too. All these took prices to a record $4,000 a tonne.

One of the factors to generate optimism about the possibility of the copper market going into surplus next year is that despite loss of production this year (estimated at 600,000 tonnes), the refined copper market has managed to go from a one million-tonne deficit in 2004 to a basically balanced situation in 2005.

"It is not such a big step for the market to move into surplus (in 2006)," commented an analyst with Macquarie Research Commodities. There is possibility that the market could move into a 300,000-350,000 tonne surplus in 2006.

The level of consumer de-stocking in the New Year is something not many are willing to estimate. Much would depend on how soon, and to what extent, demand bounces back and price levels. Of all the metals, copper has seen weak demand performance so far this year.

According to the International Copper Study Group, world demand was down 1.2 per cent year-on-year, with demand in the western world down by 5.8 per cent.

Chinese demand growth at 7 per cent year-on-year helped offset a part of losses elsewhere.

There is also suspicion of some demand compression due to high prices.

Substitution of copper with other materials is not ruled out. Whether such shift is temporary or not is also unclear. However, signs of improved economic growth could push copper demand up, especially in the US.

While world copper consumption could rise by 5.9 per cent to 17.96 million tonnes in 2006 (16.97 million tonnes in 2005), world production is forecast to rise by 8per cent to 18.29 million tonnes next year (16.94 million tonnes), leaving a small positive balance, according to Macquarie Research.