Copper may Average more Than $8,000 on Short Supply, Korean Agency Says

Oct 13 (Bloomberg) -- Copper prices may be more than 10 percent higher on average in the fourth quarter as demand outpaces supply growth, according to a state purchasing agency in South Korea, Asia’s third-biggest base metals buyer.

Copper may average more than $8,000 a metric ton in the quarter ending Dec. 31 and may continue climbing through the first half of 2011, Lee Key Man, head of the international goods bureau at the Public Procurement Service, said in an interview. The metal used in homes and appliances averaged $7,266.78 in the third quarter, according to Bloomberg calculations.

Prices on the London Metal Exchange have gained 13 percent this year, reaching a 27-month high today, as inventories dropped and the dollar slumped on speculation the Federal Reserve will step up measures to stimulate the U.S. economy.

"Despite a fast pace in the global economic recovery this year, supply growth for copper seems to have been very slow,” Lee said. "The metal is likely to advance to higher levels on slowing supply growth amid excessive liquidity in global markets.”

Diego Hernandez, chief executive officer of Codelco, the world’s biggest copper producer, said yesterday in an interview that he expects a "tighter” copper market next year because of continued demand from China and a lack of new supply.

Goldman Sachs Group Inc. also increased its forecast for copper, estimating prices would jump to $11,000 a ton by the end of next year. Copper has "the strongest fundamentals” because of low inventories, Jeffrey Currie, Goldman’s head of commodities research, said on Oct. 6. LME inventories shrank by 17 percent in the third quarter and dropped to 371,750 tons yesterday, the lowest since Oct. 29 last year.

Purchasing Priorities

Copper consumption will outpace supply by 58,000 tons this year, compared with a previous forecast for a surplus, Standard Bank Plc said in a report yesterday.

The Korean agency, which stockpiles mostly non-ferrous metals, is prioritizing purchases of copper and tin in the coming months because the metals are likely to be in "short supply,” Lee said, without elaborating on buying plans.

Copper for delivery in three months on the LME climbed as much as 0.8 percent to $8,415 a ton today, the highest price since July 8, 2008. The metal reached an all-time high of $8,940 on July 2, 2008.

Tin, used as a solder and in packaging, has rallied 56 percent this year, reaching a record $26,790 a ton on Oct. 6 on concern that supply disruptions in Indonesia, the biggest exporter, and China, the biggest producer, will cut stockpiles. Barclays Capital earlier this month predicted a supply shortage of 15,000 tons next year, the biggest since at least 2003. The metal last traded at $26,500 a ton.

The Daejeon-based procurement agency has 2,000 to 3,000 small- and medium-sized companies as customers and meets about 8 percent of the country’s metals demand.