Copper, aluminium market surpluses to rocket in 2009

LONDON, (Reuters) - Shrinking industrial activity and tumbling demand for copper and aluminium, at a faster pace than output cutbacks, means surpluses are set to rocket this year, a Reuters survey showed. The survey carried out over the last few weeks collected price forecasts for 2009 and 2010 from 57 analysts. Seventeen responded to the question on market balances. The average forecast for the copper market surplus this year is 324,500 tonnes. Last July the consensus for this year was a surplus of 141,825 tonnes. In aluminium, the picture is just as grim. Analysts expect supply to outweigh demand by 925,000 tonnes compared with last July's estimate of a 144,500 tonne deficit. "Surpluses are building fast in most metals, driven by collapsing demand across the globe," said John Meyer, analyst at investment bank Fairfax. "Chinese demand is now falling in reaction to markedly weaker consumer activity in the U.S." Up until the Olympics held in China last August, many analysts had expected the world's largest consumer of copper and aluminium to offset collapsing demand in the United States, where a housing market crisis showed no signs of abating. But they had reckoned without recession, triggered by the credit and banking crisis, and the speed with which it would engulf the world economy. "The pace and scale of the deterioration in demand so far is startling," said Gayle Berry, an analyst at Barclays Capital. "Although there have been sizeable production cuts, demand is weakening faster and, as a result, the surplus is building." Last December, prices of copper MCU3, used in power and construction, plunged nearly 70 percent to a 4-year low of $2,825 a tonne from a record high of $8,940 a tonne last July. It was at $3,435 a tonne at 1121 GMT. Aluminium MAL3, a key ingredient in transport and packaging, fell more than 60 percent to about $1,316.50 a tonne, the lowest since October 2002, since an all-time high of $3,380 last July. It was last at $1,368 a tonne. "Aluminium may have just entered a prolonged period of low prices, unless smelters remove the structural overcapacity," said Michael Widmer, an analyst at BNP Paribas. The glut of aluminium can be seen in the build up of stocks in London Metal Exchange warehouses, which at record highs above 2.7 million tonnes -- in a market estimated at around 40 million tonnes -- have quadrupled since January 2007. <LME/STX1> Copper stocks too at 451,800 tonnes have more than doubled since January 2007 and are now at their highest since late 2003. "Expect large increases in LME inventories as cutbacks in refined production fail to keep pace with the decline in demand," said Justin Lennon, analyst, Mitsui Bussan Commodities.