Demand
While China remains the key driver of copper demand, demand outside of China has rebounded strongly in 2010, offsetting slower growth in China. The key question now is how much might Chinese demand growth slow in the second half of 2010, and will growth in the rest of the world be sufficient once restocking has run its course to offset any slowing and prevent the market from moving back into surplus. We forecast a rebound of 7.0% in 2010, 5.7% in 2011 and 5.6% in 2012, followed by trend growth of 3.8% in 2013 and 2014.

Supply
Our analysis suggests that 2009 refinery capacity utilization rates fell to levels not seen since the early 1980s. Operating rates fell due to a shortage of feed including scrap, collapsing demand and an oversupplied sulphuric acid market. We expect the decline in utilization rates in 2009 to give way to a recovery beginning in 2010. However, we do not expect refinery capacity to return to full effective utilization rates due to a shortage of concentrate. Mine capacity remains the bottleneck. We forecast a rebound in global refined copper production of 4.7% in 2010, 6.5% in 2011 and 4.7% in 2012.

Market Balance and Inventories
Restricted mine supply and growing offtake have brought the market back into deficit in the first eight months of 2010 following two years of surpluses. Our forecast rebound in demand in 2010 through 2012 should result in a balanced to deficit market. Growing deficits in 2013 and beyond are forecast to reduce inventories below the critical level and result in record high annual average prices in the latter part of our forecast period.

Eoin Treacy's view The recent weakness of the US Dollar has contributed to the advance in industrial commodity prices but is not the only significant driver of outperformance for this sector. The global economy, led by the population centres of Asia and commodity producing Latin America continue to lead the world in terms of GDP growth. Intra emerging market trade continues to prosper and while deflation might be a legitimate concern in the West, quite the opposite is the case for a number of progressing markets. Demand for industrial metals continues to outstrip supply and energy commodities such as oil are now also showing signs of increased investor interest.

Copper consolidated mostly below $3.50 for much of the year but is pulling away from that area now and is approaching the 2006 and 2008 highs near $4. It has sustained a progression of higher reaction lows since July with a brief interruption in August and these would need to be taken out on a sustained basis, with a decline below $340, to question scope for further upside.

Tin has been the unquestioned leader among the industrial resources since bottoming in late 2008. The pace of the advance has picked up over the last month and prices are becoming increasingly overextended relative to the 200-day MA as it tests the 2008 peak near $25,000. However, a sustained move below $22,800 would be required to begin to question the consistency of the advance. Given the significant lead tin has over other metal prices, it is well worth keeping an eye on because it is quite likely to top out in advance of other instruments in the sector.