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 asserts that zinc at current levels (US$0.90 to 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,” Macquarie 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.