Copper inventories measured in tons are currently standing at levels seen 15 years ago, able to cover just three weeks of demand, Michael Widmer, a commodity strategist at the US’ second biggest bank, said in a note seen by CNBC.
“Linked to that, we forecast copper market deficits, and further inventory declines, this year and next,” the analyst said.
“With inventories close to the pinch-point at which time spreads can move violently, there is a risk backwardation, driven by a rally in nearby prices, may increase,” he added.
A rise in volatility resulting from falling inventories was not without precedent, according to Widmer, who said that nickel shortages in London Metal Exchange warehouses in 2006-07 triggered a surge of more than 300% in nickel prices.
BoA expects prices for copper to spike to $13,000 per ton in the upcoming years after hitting $10,000 last week for the first time in nearly 10 years.
“If our expectation of increased supply in secondary material, a non-transparent market, did not materialize, inventories could deplete within the next three years, giving rise to even more violent price swings that could take the red metal above $20,000/t ($9.07/lb),” Widmer said.
High prices for copper were additionally boosted by a weaker dollar and increasing moves toward green infrastructure, according to David Neuhauser, founder and managing director of US hedge fund Livermore Partners.
“I think copper is the new oil and I think copper, for the next five to 10 years, is going to look tremendous with the potential for $20,000 per metric ton,” Neuhauser told the media.
The strategist added that there are some very solid small cap companies that have massive production potential, and valuations are attractive and could make a great return on investment.