Macquarie Ups Base Metals Outlook, Favours Copper

SINGAPORE, Sept. 16 -- Australia's Macquarie Bank raised its 2009 and 2010 outlook for most base metals by double digit percentages on Tuesday to reflect a surge in Chinese buying in 2009 and the prospect of a demand recovery elsewhere in 2010.

    The bank upped its 2009 forecast for copper by 31 percent, to $2.38/lb ($5,247 a tonne), and in 2010, by 28 percent, to $3.20 ($7,055 a tonne). Copper was trading at $6,155 on Tuesday on the London Metal Exchange <MCU3>

    "Chinese demand was boosted by restocking and speculative over-stocking in recent months, in part sponsored by the Chinese government," Macquarie said in the report.

    "As prices have risen, the stocking element of demand is fading rapidly. Nevertheless, we think over-stocking has been over-emphasized as a threat, except perhaps in nickel, and we expect further rises in underlying real consumption in China to offset the lack of restocking during the balance of this year."

    The smallest updates were to tin prices, which the report said would average $6.17/lb in 2009, a revision of 3.9 percent, and $6.75 in 2010, up 6.9 percent from the previous forecast.

    Tin <MSN3> traded at $14,200 a tonne ($6.44/lb) on Tuesday.

    Aluminium was revised 8 percent higher in 2009 to 72 cents/lb and by 14.3 percent in 2010 to 80 cents. LME aluminium was $1,840 (83.5 cents/lb)

    Forecasts for the remaining metals -- lead, zinc and nickel -- were increased by 16 percent or more.

    "Despite the upgrades, the price revisions are cautious and mostly reflect price movements to date.

    "The caution reflects the fact that Chinese restocking has mostly ended, Western restocking will probably end by the end of the first quarter of 2010 and supply is rising in many commodities to meet higher demand."

    The bank said it was most bullish towards commodities where the potential to reactivate idled capacity was limited -- in particular, copper.

    Although it had increased its forecasts across the board, only its copper outlook was outright bullish over the next 12 months versus current spot prices, it said.

    "We would be more cautious on steel, nickel, aluminium, manganese and chrome since the ramp-up of idle capacity could cap prices."

    "Indeed, in aluminium, nickel and zinc, supply responses are already well underway (in China and to a lesser extent the world ex-China) following the sharp rally in prices since the beginning of the year, and we expect this response to leave these markets in small/moderate surplus in 2010."

    (Source: Reuters)