citi sees higher copper prices for 2009

Citi sees higher copper price on supply pinch
7 Jul, 2008, 0827 hrs IST, REUTERS

SYDNEY: Investment bank Citi sharply increased its copper price forecasts for the next two years on Monday, citing a larger-than-expected shortfall in supplies ahead.

Citi forecast copper to average $5/lb in 2009, up from an earlier forecast of $3.50 a pound, and $5.50/lb in 2010 versus $3/lb in its previous forecast, it said in a report.

"Copper mine production continues to undershoot expectations, mainly because of losses at existing operations, rather than delays to new projects," the bank said.

"We now expect mine production to be some 900,000 tonnes below capability in 2009." Copper for three-month delivery was quoted at $8,515 ($3.86/lb) on Monday.

The metal, used in power and construction, reached a record $8,940 a tonne ($4.05/lb) in after-hours trading on Wednesday. Citi also said copper should average $4/lb in the second half against a previous forecast of $3.50/lb.

Shortages of acid, power and water needed to operate mines were also contributing to pinched supply, according to Citi.

In copper futures markets, large speculative long positions, which were an important risk, had been liquidated, adding more upside potential to prices, it said.