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By Bloomberg News
(Bloomberg) — Dr. Copper’s comeback is only just beginning. The metal often used as a barometer of global economic health will probably rally toward $7,000 a metric ton this year and surge past $8,000 before the end of the decade as demand tops supply, according to Citigroup Inc.
Citigroup Sees Copper Topping $8,000 as Deficits Will Endure.
“As the global economy departs from several years of stagnation, so too does the outlook for copper,” analysts led by David Wilson wrote in a report received on Monday. The market will swing to the first deficit in six years in 2017, with a shortfall of 68,000 tons, see a bigger shortage of 180,000 tons next year, and remain in shortage to 2020, they said.
The metal used in cables and wires climbed 18 percent last year to cap the first annual gain since 2012 as better-than- expected Chinese demand joined with tighter supplies to boost most industrial commodities. The advance has continued at the start of this year, helped by stoppages at the world’s two biggest mines. Citigroup said the consequences of a slump in spending on new mines will likely become more apparent, while demand goes on rising.
“The dramatic capex crunch in the copper mining sector since 2012 has eviscerated the copper project pipeline for much of the remainder of the current decade,” the analysts wrote in the note, titled ‘The Return of Dr. Copper.’ “The resulting period of deficit is, in our view, setting the market up for the most sustained price rally since 2010.”
On the Rise
Three-month copper rose 1 percent to $6,019 a ton on the London Metal Exchange at 1:57 p.m. in Singapore. Last week, the benchmark hit $6,204, the highest since May 2015 on the mine supply concerns, and comments Monday by Freeport McMoRan Inc. that it remains in dispute in Indonesia helped to support Monday’s gains. The metal hasn’t traded above $8,000 since February 2013.
While prices have advanced, they aren’t high enough to encourage a new cycle of investment, according to Citigroup, which said supply may begin to drop by 2020 even as demand expands. It noted there is only one, major new greenfield project due to start in the coming years, First Quantum Minerals Ltd.’s Cobre Panama.
“Long-term demand fundamentals should remain stable in our view as new energy applications on the one hand, and continuing urbanization driven demand on the other, prove supportive,” they wrote. “Asia remains a beacon of continued demand growth in particular, with China a dominant driver.”
Goldman Sachs Group Inc. is also positive on copper, including a report last week that highlighted its view that a rerun of China’s massive stimulus during the financial crisis may boost metals prices. The acceleration in demand is expected to push copper, as well as other metals into deficit, it said.
End of News.
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