JP Morgan calls metals higher

[miningmx.com] — JP MORGAN has predicted in its latest Metals Review and Outlook research that commodity prices should move generally higher next year, with copper likely to be a very strong performer.

According to analyst Michael Jansen, the firm was upgrading its forecasts “across the board to reflect the increasing appetite for investors to hold hard assets, along with what has been stronger than anticipated demand for metals from real consumers’.

The one metal that JP Morgan is “relatively downbeat’ on is nickel, which the firm expects to move from the current deficit situation to a surplus of 23,000 tonnes (t) in 2011, rising to a surplus of about 90,000t in 2012.

Jansen said the firm expected gold to trade consistently above $1,400 per ounce in 2011.

He said: “In summary, we see the current macroenvironment as incredibly friendly to silver and gold.’

“Key members of the FOMC (Federal Open Market Committee) continue to argue the case that the economic data must justify reasons why additional stimulus measures should not be introduced, given the high level of slack in the US economy is likely to lead to disinflationary or deflationary outcomes.

“Accordingly, in the view of the FOMC, a little above-target inflation is considerably better than a touch of deflation.’

Jansen said copper should trade consistently above $8,000/t next year, and that the metal “is on track to finish 2011 above $9,000/t, courtesy of another significant drawdown in inventory that brings with it a requirement to lift prices to ration demand.

“The rest of the base metals are expected to be in modest surplus in 2011 but zero interest rates, unfettered storage capacity and the penetration of financial institutions and investors into the commodity space imply that the industry will comfortably carry surplus stock, allowing prices to trade higher than we had otherwise expected.’

The report highlighted the favourable impact of additional economic stimulus packages – such as the one just announced by the Bank of Japan – as well as rising inflation rates in the emerging economies and the strength of the economic recovery.

Jansen said: “It is important to realise that global industrial production in 2011 is expected to post an extremely robust growth pace in excess of 5%.

“This promises annual consumption growth in the base metals within a range of 4% to 9%. This level of demand growth is not easily met via primary mine production, and we expect that copper in particular will fall short.

“In addition, the underlying level of demand in Bric (Brazil, Russia, India and China) countries – principally China – is materialising to be considerably stronger than many analysts had expected, with industrial production still likely to be north of 13% (15.1% year-on-year by end-2011) and GDP (gross domestic product) edging towards 10%.

“While there are extremely valid concerns of a slowdown in demand in the developed markets – in which the current “big think’ policy response is being formulated – the emerging nations are facing a far more upbeat economic environment.

“Indications of this are clearly evident, not least being that global auto sales are near record levels, even though Western European car sales are 12% below year-ago levels and US car sales are some 47% from their 2006/2007 peak levels.

“This, of course, reflects the rapid rise in vehicle sales in emerging markets, China in particular.’

Turning specifically to copper, Jansen said existing mines are struggling to meet targets and, with only a few notable exceptions, projects are subject to delay.

He said: “Disruptions aside, we note that the current project pipeline is both pretty thin and concentrated with around 70% of new projects in just two locations, Latin America and Africa, both of which represent different, but very real challenges.’