SANTIAGO, Jun 04, 2010 (Dow Jones Commodities News Select via Comtex) -- Chilean state copper commission Cochilco raised its forecast Friday for copper prices to an average of $3.20 a pound this year and $3.30 a pound in 2011.
Stronger growth in countries like the U.S. and Japan, as well as China's apparent demand, which is falling more slowly than expected, will boost copper prices, Cochilco said.
In mid-January Cochilco said it expected copper to average $3.10 a pound this year and $3.20 a pound in 2011.
Chile is not only the world's largest copper producer, accounting for nearly 35% of global output, but is also one of the biggest molybdenum miners. The metal, found as a by-product at several copper mines and used to harden steel, is expected to average between $14 and $18 a pound in 2010, Ana Zuniga, research and policy planning director at Cochilco, told reporters.
Meanwhile, concerns over euro-zone sovereign debt have recently pushed the euro to its lowest level in four years against the dollar, as investors flee to the relative safety of the greenback.
The relative strengthening of the dollar against the euro, some 15% since the end of last year, has placed downward pressure on copper prices and fueled volatility in the market, Zuniga said.
Due to the volatility in markets, copper prices have fluctuated between $2.83 a pound and $3.60 a pound so far this year, while spot copper prices in London are down 2.6% Friday to $2.93 a pound, bringing the year's average to $3.28 a pound.
However, even if the dollar were to continue to strengthen versus the euro, Cochilco still expects copper prices to stay above $3.00 a pound for the year.
"Market fundamentals are still strong, even more so than at the beginning of the year, as mine production will have difficulties keeping up with demand, and as China keeps focused on growth," said Zuniga.
China is the world's largest consumer of copper.
In 2010, the copper market will likely see a 364,000 metric ton surplus, the equivalent of 3.8 weeks of copper consumption, while in 2011 the market will change to a 194,000-ton deficit, bringing inventories to 3.2 weeks of consumption, Cochilco said.
During 2009, the copper market had a 56,000-ton surplus, equivalent to 3.4 weeks of consumption.
Global copper mine production in 2010 is expected to remain virtually flat on the year at 16.0 million tons, and then gain 2.2% in 2011 to 16.3 million tons.
World copper demand is anticipated to shrink 1.3% on the year in 2010 to 18.1 million tons, as China dips into its inventories, while it will grow 5.5% to 19.1 million tons in 2011 as China is again expected to lead consumption, said Cochilco.
Also, Chile's copper output will likely grow 6.4% on the year in 2010 to 5.74 million tons, as Escondida, the world's largest copper mine, which is controlled by BHP Billiton Ltd. (BHP, BHP.AU), is expected to overcome its operational difficulties, and as expansions at Antofagasta PLC's (ANTO.LN) Pelambres mine and Chilean state copper company Corporacion Nacional del Cobre's Andina mine come on line, according to Cochilco.
Copper production in Chile is then forecast to rise 2.2% in 2011 to 5.87 million tons, as the Pelambres and Andina mines ramp up and as Antofagasta's Esperanza mine starts operations.
The value of Chilean copper exports will jump 44% this year to pre-financial crisis levels of $37.8 billion and grow a further 5.3% in 2011 on the year to $39.8 billion, said Cochilco.