Macquarie says the best is yet to come

The recent pullback in base metals is a “good entry point for investors” analysts at Macquarie Capital Markets report in a May 17 research note to clients.

Macquarie argues that the copper market “is starting to turn” after a period of “scrap and consumer de-stocking and weak Chinese output,” and forecasts the copper market will post a 500,000 tonne deficit this year and a 200,000 tonne deficit next year. “This move would take copper stocks down to critically low levels of around three weeks of global consumption by the end of 2011,” the report states.

This year Macquarie forecasts an average copper price of US$4.67 per lb., climbing to US$5.25 per lb. in 2012, and recommends clients “own a core position of copper and look to add to the position with any macro driven dips over the coming year.”

The report also notes that zinc at current levels (US$0.90-US$1.15 per lb.) represents a good buying opportunity. It reasons that the market for zinc concentrates is likely to move “into a modest deficit over the next year or so” and that “premiums remain firm in all major regional markets (outside China) and continue to rise in the USA, reflecting a fairly tight balance in physical markets.”

“This is not to ignore the high level of reported commercial inventory that the industry is carrying (from the surplus accumulated during the downturn),” it adds, “but much of this metal is not easily accessible to the market.”

Macquarie anticipates a 2011 zinc price of US$1.05 per lb. and US$1.11 per lb. in 2012.

Prices for nickel are forecast to be US$11.11 per lb. in 2011 and US$9.50 per lb. in 2012 as the market moves from a deficit in the first half of 2011 to a surplus in the second half of the year due to rising production from nickel operations that have recently been interrupted by accidents, as well as the commissioning of greenfield nickel projects and higher nickel pig iron production in China.

Macquarie predicts global nickel output will increase by just over 10% this year and a further 9% in 2012.

As for coal, Macquarie expects prices for hard coking coal this year of US$303 per tonne FOB Australia and US$264 per tonne FOB Australia in 2012.