Copper prices led the base metals sector higher for much last year. The "red metal" finished last year on a high of $7,346/tonne with further gains in early 2010. The increase came about despite the sharp rise in terminal market inventories. Prices have been supported by some labour disputes in Chile; however the more fundamental reason is the looming structural tightness on the supply side.

The increase in price in 2009 also came about despite weak demand conditions. GFMS notes that despite the massive surge in Chinese demand in the last decade there has been no discernible shift in the long-term growth rate for copper. GFMS will analyse underlying consumption trends in detail in the 2010 Annual Copper Survey.

From a fundamental standpoint, we expect that conditions will improve in 2010. The key factor in terms of prices is whether this leads to further gains, or merely helps to consolidate recent advances.

At this stage, GFMS believes that the most likely price outcome is for prices to consolidate recent gains with the potential for some further minor increases. However, for prices to revisit the previous bull market peaks, we believe that there has to be significant reversals of the uptrend in LME inventories.