World copper prices have spiked by 30% since the end of last year, causing analysts and economists to adjust full-year forecasts.

Wachovia Bank is at the high end of the range with a $3.29/lb forecast. J.P. Morgan & Co. has a new forecast of $2.96. Natixis Commodity Markets projects $2.88. Chile's central bank lifted its price forecast to $2.90. Purchasingdata.com has boosted its forecast to $3.05. While Merrill Lynch & Co.'s “admittedly bearish” 2007 price forecast of $2.35 “will need upgrading if spot remains around $3.50,” says analyst Vicky Binns, but she isn't ready to boost the outlook just yet—saying “$3.50 copper isn't unsustainable.”

The Australia-based Merrill Lynch analyst says copper prices have increased this year because of stronger Chinese imports, an investor perception the U.S. housing slide has bottomed, some mine strikes that have impacted supply and active trading by investment funds. “All of this has increased volatility—especially since recovery in U.S. housing remains weak and unlikely to lift copper demand until the first half of 2008,” says Binns. She adds that “China's exchange inventories are high and rising and imports should slow.”

Meanwhile, world refined copper production is set to exceed demand in both 2007 and 2008, with the overall supply surplus easing slightly this year but jumping sharply in 2008, according to the new (mid-May) forecast by the International Copper Study Group. According to ICSG data, after ending 2005 with a deficit of 120,000 metric tons, the copper market in 2006 turned to a calculated surplus of around 330,000 metric tons, or about 1.9% of annual usage. Projections for 2007 indicate an additional surplus of 282,000 metric tons, and projections for 2008 indicate an even larger surplus of 520,000 metric tons, the ICSG suggests.