Barclays: Copper prices could reach US$4,000/t in 2005

Copper's price could reach as high as US$4,000/t (US$1.81/lb) over the next six months due to a variety of different factors, Barclays Capital has predicted. In a report on the outlook for the copper market in 2005, Barclays' base metals analyst Ingrid Sternby said there are "very good reasons" for why copper has reached its highest level in 16 years. These include strong Chinese demand, the economic upswing in the US, underinvestment in new supplies, low inventories, a falling dollar and increased investment in commodities as an asset class. Sternby added that despite market concerns, there are still no conclusive signs that the upward trend in prices is about to reverse. She added that even though supply is accelerating and demand is slowing, she expects the copper market to remain in deficit this year and that the upward pressure on prices will continue. "In the current environment of extremely low inventory levels we would not rule out a price spike of US$4,000/t over the next six months," Sternby said. Although non-ferrous exploration budgets grew by almost 60% in 2004, many producers have said that developing new mines is taking longer than ever, due to a number of factors including rising production costs, and tighter environmental and labor regulations. "In addition, current output levels should not be taken for granted as plants are already operating flat out, increasing the risk of output disruptions," she said. Output growth is also being limited by a lack of mining equipment, from drilling parts to tires, she added. "This is in line with recent comments from Caterpillar, reporting record demand for mining equipment, and also with heavy requirements for equipment from non-mining activities, such as Iraq," she said.