CHINA FACTOR

Near term copper price pullback will be reversed - Morgan Stanley

Top bank Morgan Stanley has increased its 2009 copper price forecast to $2.14 per lb and to $2.50 in 2010 as it reckons China's economic recovery will widen and deepen.

Author: Reuters
Posted:  Friday , 03 Jul 2009

LONDON (Reuters) - - 

Morgan Stanley (MS.N: Quote) has hiked its 2009 and 2010 copper price forecasts, partly because of a strong recovery in China, the world's largest consumer of the metal used in power and construction.

The bank raised its 2009 copper price forecast by 48 percent to $2.14 per lb from $1.45 previously. For next year, the forecast was raised 52 percent to $2.50 per lb.

"Demand from China for strategic reserve purposes and commercial restocking has been a main driver of price support," Morgan Stanley said.

"This is consistent with a view that stimulus packages and easing access to credit are encouraging demand."

In the near term, however, there was a risk that an end to Chinese restocking and a seasonal lull in demand will contribute to a price correction.

Morgan Stanley expected this would be short lived, partly because China's economic recovery continued to widen and deepen.

Surveys of manufacturing showed the sector in China expanded modestly in June.

Also, leading indicators of global industrial production like purchasing managers indices have started to reverse the strong downtrend seen in the second half of 2008.

Other positive factors include unprecedented global fiscal and monetary stimulus packages and expected cyclical weakness in the dollar.

A weak U.S. currency makes dollar-priced metals like copper cheaper for non-U.S. investors.

Demand for copper outside China remained weak on account of the global recession, but Morgan Stanley noted copper has held up better than most investors expected.

"In base metals, our preferred exposure is copper, with short term downside price risk providing a new entry point after the recent strong rally," it said.

(Editing by William Hardy)

© Thomson Reuters 2009. All rights reserved.

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