JPMorgan Raises Base-Metals Forecasts, Expecting Revived Demand

LONDON, July 29 -- JPMorgan Chase & Co. raised forecasts for prices of industrial metals on prospects for a second-half rebound in demand driven by expanding worldwide factory output.

    Copper will average $4,775 a metric ton in 2009, 16 percent more than predicted in May, Michael Jansen, an analyst at JPMorgan in London, said in an e-mailed report dated yesterday. The bank raised its forecast for nickel's average price this year by 30 percent and also increased estimates for aluminum, zinc and lead, while reducing projections for gold and silver.

    Worldwide industrial production is set to expand at a 7 percent annualized pace in this year's last six months, Jansen said in the report. Base metals may be able to keep rising through the end of 2009 as a result, he said, as the process of inventory restocking that has buoyed prices this year moves on from China to other nations.

    "The next six months is likely to deliver an environment in which a process of rolling restocks takes place, delivering a tsunami of consumer activity throughout the pipeline," Jansen said. "This has largely been completed in China and is now moving east into non-China Asia and likely to reach the Americas" in the current quarter or next three months, he said.

    Copper Deficits

    Copper which has gained 83 percent this year in London, is its "favored base-metals exposure over the longer term," said JPMorgan, the second-largest U.S. bank by assets, citing the potential for "prolonged" supply deficits in coming years. The metal, used in pipes and wiring, will average $5,563 a ton next year, the bank said, 21 percent more than its prior forecast.

    Copper for three-month delivery traded at $5,638.25 a ton at 10:30 a.m. on the London Metal Exchange, while nickel was at $17,010 a ton. Lead was at $1,805 a ton, zinc traded at $1,721 a ton, and aluminum was at $1,855 a ton.

    Nickel, used mainly to make stainless steel, will average $15,556 a ton this year, JPMorgan said. Aluminum, utilized by industries from packaging to aerospace, will average $1,608 a ton, up 11 percent from previously, according to the report.

    The bank raised its average 2009 estimate for lead by 17 percent to $1,498 a ton and increased its projection for zinc by 13 percent to $1,517 a ton.

    Chinese Imports

    The LME's index of six industrial metals has advanced 55 percent in 2009, beating the 8.7 percent gain by the Standard & Poor's 500 Index of shares. U.S. Treasuries have returned a negative 4.9 percent, according to Merrill Lynch & Co.

    Copper imports into China, the world's largest consumer of the metal, rose to record high in June. Caijing magazine reported in June that China has bought 235,000 tons of copper for strategic reserves this year, citing Yu Dongming, a Chinese government official.

    Gold will average $939 an ounce this year, down 2.1 percent from May's projection, JPMorgan said. The bank left its 2010 forecast unchanged at $950, while reducing this year's estimate for silver by 0.9 percent to $13.90 an ounce.

    "Precious metals have settled into a sideways range, with direction increasingly reliant" on movement in the dollar, Jansen said. Lower prices amount to "buying opportunities" because of investors' concern about inflation, he said.

    (Source: Bloomberg)