Barclays expects copper prices rose above $ 10,000 in 2011

Copper should rise above $10,000 a tonne in 2011 as growth in the United States and other developed economies heats up, while supplies remain tight, said Barclays Capital on Thursday.

Kevin Norrish, managing director of Barclays' commodities research, team told a press briefing that he sees copper prices averaging $9,950 a tonne through third quarter of 2011, giving it potential to trade up to $10,000 per tonne.

"We're forecasting $9,950 a tonne as an average into the third quarter next year. If it's going to average that, then it's going to have to trade, at least for certain periods of time, above that," said Norrish.

He added that Barclays expects copper inventories to fall to their lowest levels on record next year, at a time when the pace of economic growth is forecast to increase.

"We see a pretty healthy and robust recovery developing in the United States and other parts of the OECD, in parts of Europe, like Germany in particular. China is slowing down, but we think growth is going to continue to be healthy next year."

Improved confidence in financial markets and reasonably strong economic growth, along with supportive monetary policy in industrialized economies should boost commodity prices.

For copper specifically, he noted that supply has been extraordinarily tight. The problem, he said, was a lack of large copper projects under development.

"It's been very difficult to grow supply," Norrish said.

At $10,000 a tonne, some copper mine projects would become profitable that would lay dormant with copper at $7,000 or $8,000 a tonne. Once underway, new projects take time to get up and running, Norrish said.

The supply crunch is occurring at a time when countries like China and India require increased amounts of copper for an accelerated pace of infrastructure building, greater consumer demand for cars and appliances and increased home building.

"I think we're in an environment that, for quite awhile, we're going to have quite high prices. There will be quite volatile prices. And prices will need to be the thing that balances the market," he said.

He added that China has gone through a months-long destocking period that has lowered their copper imports, a trend that will have to end at some point.

"Destocking can't go on forever and we think there will be positive impact there," said Norrish, adding that he sees China continue to grow at a fast clip at least until 2025.

As the process of moving roughly 15 million people into urban areas per year in China, "Copper will be one of the big beneficiaries. With living standards rising, you have to build cities and build the infrastructure that links them together. And copper gets used very intensively," he said.

That urbanization process should keep copper high for the foreseeable future. Further out, forecasting reliable supply and demand balances becomes more problematic.

"Certainly next year, it looks very tight. And probably the year after that as well. We don't have a lot of large new copper projects coming into the market and there is a lot of demand. So, prices will need to go higher to order to slow down that demand growth," he said.

Easy substitutions took place when prices surged to records 2006 and 2007, and copper lost market share to other materials in applications like plumbing and some wire and cable.

"But the easy substitution has been done. I think we're in a slightly uncertain situation where we don't know what the upper limit is, because we don't know where prices have to go to encourage the more difficult substitutions," he said.

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