Copper to Advance Through 2012, Morgan Stanley Says

By Glenys Sim

Oct. 14 (Bloomberg) -- Copper may average higher for each of the next three years, driven by better-than-anticipated demand in China, global supply constraints, and longer term growth recovery, according to Morgan Stanley.

The red metal may average $2.27 a pound this year, up 6 percent from an earlier target of $2.14, the bank said in a report today. It may average $2.98 a pound next year, $3.18 a pound in 2011 and $3.31 a pound in 2012, up as much as 19 percent from previous estimates, the report said.

“We expect the broad and strong gains in base metal prices in 2009 to be sustained into 2010 and beyond, led by copper which remains our preferred base metal exposure,” Morgan Stanley’s analysts wrote.

Copper has doubled this year as governments around the world ramped up stimulus spending to spur their economies. China’s 4 trillion yuan ($586 billion) stimulus plan and record lending drove the country’s imports of the metal to record levels in the first half of this year. China’s imports of refined copper reached a peak of 475,999 tons in June, and were 399,052 tons last month, according to customs data today.

“A deficit market characterized by growth recovery and long-term supply constraints highlight the risks of copper’s vulnerability to supply or demand shocks from 2010 onwards,” wrote the analysts.

The metal for delivery in three months on the London Metal Exchange has averaged $4,769.53 a ton this year, and traded at $6,200 a ton at 10:32 a.m. in Singapore.

“Cyclical trends”

“Cyclical trends are supportive for commodities as unprecedented fiscal and monetary easing has re-ignited growth,” the analysts wrote. “The U.S. dollar remains in a sustained weakening trend, and asset allocations towards commodities are increasing.”

The Dollar Index, which tracks the performance of the greenback against six major trading partners including the euro and yen, fell for a third day to the lowest level since August 11, 2008. Dollar-denominated copper tends to move inversely to the U.S. currency.

Still, a period of consolidation seems likely while China “digests its imports” and other markets take more time to recover, the analysts wrote.

Global copper production will exceed demand by 539,000 tons in 2010, compared to an estimated 368,000 tons this year, as consumption slows, the International Copper Study Group said. Production of refined copper will rise 0.7 percent to 18.22 million tons as consumption slips 0.3 percent to 17.68 million, the group said Oct. 9.

Zinc, Nickel

Morgan Stanley also raised its price targets for zinc and nickel through 2012. It expects zinc to average 68 cents a pound this year, 80 cents in 2010, 83 cents in 2011 and 87 cents in 2012, up by as much as 16 percent from earlier calls.

Nickel may average $6.54 a pound in this year, $7.78 in 2010, $7.88 in 2011 and $8.08 in 2012, as much as 15 percent higher than previous estimates.

To contact the reporter for this story: Glenys Sim in Singapore at gsim4@bloomberg.net