Copper Expected To Hit New Highs Next Year

The price of copper has gone up more than 20 percent this year

, hitting a record high of US$8,966 a ton earlier this month. This is on the heels of its spectacular 140 percent increase in 2009.

According to analysts, the primary drivers of coppers record-breaking run are:

Increasing demand. Demand for copperwhich is primarily used in the electrical and construction industriesis going up, especially in the fast-growing Chinese manufacturing sector.

Decreasing supply. Copper ore grades at existing copper mines are deteriorating, while other major projects are hobbled by delays and labor disputes, cutting world copper production to approximately 80 percent of capacity. Not enough new mines are opening to meet the rising demandin early November, the Canadian government rejected the British Columbia Prosperity gold and copper mine, which would have been a major new source of copper in Canada.

Weakening U.S. dollar. As ongoing economic stimulus measures increasingly burden the U.S. dollar with U.S. government debtthe U.S. Federal Reserve recently announced that another $600 billion will be printed between now and June 2011investors are increasingly turning away from depreciating paper assets and investing in metals, such as gold and copper. Also, a weak greenback makes metals prices in U.S. dollars less expensive for holders of other currencies, motivating manufacturers to buy.

Low interest rates. With returns in many markets reduced by low interest rates, coppers growth provides much more attractive returns for investors.

The eurozone debt crisis. As the common European economy falters, investors are dropping their euros and other paper assets and buying hard assets.

All of these drivers set copper up for a bullish 2011, although copper has declined since mid-November (as have most other commodities) as high Chinese inflation has prompted the Chinese government to increase bank reserves and raise interest rates, reducing projected demand for materials. Also, European manufacturers demand for copper is declining as eurozone debt woes discourage investment in the European manufacturing sector.

However, analysts expect these influences to be temporary, as Chinese inflation control is expected to be swiftrestoring Chinese industrial demand to its previous levels in early 2011and the eurozone will likely to bolster investor confidence by implementing solid debt-management measures.

Considering that copper almost reached the $9000/ton mark this month, analysts predict copper to spend the first half of 2011 at or near its recent high, and hit a high mark of $11,000 to over $12,000 a ton before the end of 2011.

Copper has seen impressive gains over the past two years, and indications are that the next two years will see new records being set.

by: Rajib

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