As copper prices hit a 28-month high, there’s a big reason why they’re surging which has nothing to with Fed policy.
Demand is blowing away supply growth:
Some of the world’s top copper miners raised production by 4 per cent last quarter, a Reuters analysis based on earnings results so far showed on Monday, suggesting growth may fail to meet booming global demand. The companies reported represent about one-tenth of global mined copper production.
Operational constraints and cutbacks initiated in 2009 are projected to constrain mine production to 16.2 million tonnes in 2010, the International Copper Study Group (ICSG) said.
Looking to 2011, increased economic activity is expected to boost end-user demand for the metal much faster than production, pushing the global market deeper into deficit of about 400,000 tonnes.
“The significant level of production disruptions from project delays, technical problems, and labour and political unrest that has become the norm in recent years is expected to continue to reduce output,” ICSG said in a recent forecast.
Copper’s surge is thus the result of ‘good’ inflation, ie. demand-pull inflation representative of economic growth.
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