Jan. 12 (Bloomberg) --Copper prices may gain as much as 25 percent in the second half of this year on steady demand from China, the world's top consumer, amid tight supplies, according to Mizuho Corporate Bank Ltd.
Prices of the metal, used in pipes, tubes and wires, will climb to as high as $9,500 a metric ton from last year's close of $7,600, said Yuka Kageyama, a commodity derivatives analyst at the bank, a unit of Mizuho Financial Group Inc., Japan's second-largest bank by assets.
The London Metal Exchange LMEX Index of six primary metals including copper and aluminum, fell 22 percent last year, the first drop in three years, as Europe's debt crisis widened. Yields on two-year Greek debt surged to 152 percent last month, compared with 0.29 percent for Treasuries of a similar maturity. China's inflation cooled to a 15-month low and producer-price gains were the smallest in two years in December, leaving the government more room to support growth.
"The European debt-crisis issues will be the key for most commodities this year," Kageyama said in an interview yesterday. "We expect that China may ease its monetary policies in the first half and Europe's problems may recede later this year, paving the way for a rally among base metals as supplies will remain tight."
Dwindling stockpiles at LME warehouses will also provide support for copper, she said. Prices may decline as low as $6,500 a ton with an average price of $7,950 for 2012, the bank said in a January note to clients.
Orders to draw copper from LME warehouses, or canceled warrants, gained 24 percent to 50,000 tons on an increase in New Orleans. Inventories of the metal slipped 0.3 percent to 364,250 tons, the lowest level since Dec. 22, 2010, according to exchange data yesterday.
Three-month copper on the London Metal Exchange rose 0.6 percent to $7,830 a ton at 3:43 p.m. Tokyo time. The metal declined 21 percent last year and averaged $8,164.50.
China's central bank may reduce reserve ratios in the first half, Helen Zhu, a strategist at Goldman Sachs Group Inc., said yesterday. China's copper imports rose to a record last month as Lunar New Year stockpiling and financing needs spurred buying.
Copper will average $7,750 a ton in 2012 and $7,313 in 2013, Michael Widmer, head of metals research at Bank of America Merrill Lynch, said in a weekly note on Jan. 9. The metal will average $3.83 a pound ($8,444 a ton) in 2012 and $4.08 in 2013, Mark Pervan, head of commodity research at Australia & New Zealand Banking Group Ltd., said in a note yesterday.
For aluminum, output cutbacks, concern over China's power supply and higher oil prices will lend support and may push the metal as much as 19 percent higher to $2,400 a ton this year from the end of last year. Production costs for aluminum are estimated at between $2,000 and $2,200 a ton, she said.
Chinese aluminum smelters may idle their annual capacity by one-third, the most in three years, as energy costs soar and prices slump. The country may produce almost 20 million tons and its capacity may be as much as 30 million tons by the end of this year, said Luo Rongjin, a Beijing-based analyst with Bocom International Holdings Co. Monthly output from China, the world's biggest producer, fell 8.3 percent in November from a record 1.6 million tons in August.
Alcoa Inc., Rio Tinto Group and their global rivals are cutting production after prices dropped 19 percent last year, curbing profits. Alcoa, the largest U.S. producer that reported its first loss in two years this week, said China may use 70 percent of its capacity in 2012.