very cheap buy, page-6

Asia's copper shares to catch up with metal's rally
But maybe not for long, say

HONG KONG (MarketWatch) -- Copper prices trade near their highest level in more than four months and, while Asia's copper shares have yet to pace that rally, some analysts are betting they will soon.

Copper for December delivery trades around $3.50 a pound in New York -- at levels the contract hasn't seen since late April.

A rise in China's manufacturing activity in August has helped raised construction demand prospects for the metal. See story on China's PMI.

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"The copper price has climbed through August (a month in which demand is seasonally weak) and is currently trading at around its local peaks reached in January and April of this year," analysts at Macquarie said in a recent note to clients.

Strong, continued growth in Chinese consumption as well as stronger-than-anticipated rebound in copper consumption elsewhere has helped to drive the price rebound, Macquarie analysts said, adding that data from the International Copper Study Group points to ex-China copper consumption rising by 11% over the year to May 2010.

The higher demand outside of China largely excluded construction, they said, but in China, semi-fabricated copper output has climbed by around 20% over the year to July, driven by strong construction and consumer appliance and auto demand.

At the same time, global mine supply has seen limited growth, up less than half of a percent year on year to May 2010, the analysts said.

Threatened supply
The copper market has also shifted to a deficit so far this year from a surplus last year.

The market's supply reached an estimated 250,000-300,000 metric ton deficit over the first seven months of 2010, from a 1.2 million metric ton surplus is 2009, Macquarie analysts said.

They predict a market deficit of 260,000 metric tons in 2010 and a deficit of 425,000 metric tons in 2011.

Adding to the potential for higher copper prices, authorities in Chile are reportedly taking steps to close mines in response to the mine collapse in the country that has trapped workers underground, they said.

That's likely to cut further into copper supply levels.

Playing catch up
All of that points to a tighter copper market, longer term.

Macquarie analysts said Chinese investment in power infrastructure may increase "rapidly" over the next 12 to 24 months as the government builds three new rural power grids and invests in upgrading and expanding the non-rural grid. And "any improvement in construction activity in the developed world would be very bullish for copper."

Overall, "prospects for long-run growth driven by Chinese infrastructure demand remains intact," analysts at Goldman Sachs said in a report Wednesday.