BMO's Melek says supply constraints already evident in copper

BMO's global commodity analyst Bart Melek has a "quite robust view of the commodity market" and anticipates a "robust restocking cycle" in metals.

RENO, NV - 

BMO Capital Markets global commodity analyst Bart Melek said Monday the impact of the Chilean earthquake will be "not all that great" in terms of global copper supplies.

Instead, Melek suggested a production decline of Chilean copper could halve copper surplus and make markets tighter.

During a conference call with journalists at the BMO Capital Markets Global Metals & Mining Conference, Melek forecast supply constraints in copper, iron ore, platinum, silver and metallurgical coal.

Melek predicted a less than 50,000 tonnes of copper production decline for the year because of the massive 8.8 earthquake that hit central Chile. He noted that supply constraints already exist in copper, and forecast a copper deficit of 200,000 tonnes in 2011.

Meanwhile, Melek told reporters to expect a "robust restocking cycle" of several metals, including copper, as metals inventories will have to be beefed up as the global economy continues to recover. He stressed that metals inventories which have declined during the global economic crisis "will have to be beefed up" as the economy improves.

A "massive inflection point in steel activity" has necessitated the return of 27 million tonnes of production, which has made "spot markets in iron ore quite hefty," Melek advised. He suggested that met coal will also benefit from the increased global steel demand.

Meanwhile, zinc and copper inventories will "whittle down" as the steel market start its recovery, Melek added.

Melek expressed concern about possible supply constraints for platinum and silver "down the road" due to rebounding industrial uses and mine production that is "moving a little slower than demand."

However, he suggested the nickel market is somewhat oversupplied at the present time.  Nevertheless, Melek believes stronger nickel prices are possible in the next few months due to restocking demand.

Melek also forecast that investors will continue to use gold as a hedge.

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