Higher Copper Prices, Aluminium Oversupply -BoAML

LONDON, July 27 -- Capacity constraints are likely to boost copper prices, while aluminium will remain oversupplied in the coming years, Bank of America Merrill Lynch said on Monday.

"Some of the base metals, like aluminium are very oversupplied and are likely to remain oversupplied in the coming years," Sabine Schels, global commodities strategist at Bank of America Merrill Lynch <BAC.N> said at a briefing in London.

"Commodities like copper have seen significant capacity constraints on the mining side, which should push prices higher," she added.

Copper, used in power and construction, hit $7,088 a tonne on Monday, within touching distance of a two-month high of $7,090 a tonne on Friday.

Improving prospects for global demand and easing fears over sovereign debt and the financial crisis, have all supported prices.

Aluminium <CMAL3> traded at $2,048 a tonne at 1317 GMT. LME stocks for the metal, used in transport and packaging, are currently at 4.4 million tonnes, having hit a record high above 4.6 million tonnes in late January.

"We think crude oil prices and also metals prices, are likely to remain in a very tight range going forward," said Schels. "We do expect a very high correlation of our markets (commodities) with equities and with other asset classes."

"We think the downside going forward is relatively limited, although we still hold a very, very cautious view on the bulks (iron ore, steel).

On the overall economic outlook, BoAML strategists do not see stagnation or a double-dip downturn, but a slowing in global economic growth in 2011 as stimulus packages are gradually withdrawn.

"For this year as a whole, we still project 4.5 percent global GDP growth, for next year 4.2 percent," said Holger Schmieding, head of developed Europe economics at BoAML.

In China, the world's top metals consumer, BoAML forecast growth at 10.1 percent this year to 9 percent in 2011.

"It will concern markets, especially in the near future, as we are in the process where some leading economic indicators are rolling over or starting to come down," Schmieding added.