"I feel that there is a deficit and that the surplus was just illusory," BME managing director Peter Hollands told Reuters. "There's tremendous price uncertainty."

This forecast contradicts the view of several other analysts who have predicted a sizeable surplus of refined copper, and suggests market volatility as dominant short investment funds have to cover huge positions.

"For now, we are stuck with a dull 70-85 cent per lb trading range. But when the market does return to deficit, the take off in cash prices could be spectacular," BME said in a report issued on Thursday. If a copper bull run starts, it may do so without much change in the current low level of stocks, resulting in a cash price rise of 8-9 cents per lb per month, double the historical norm, and a large backwardation, BME said.

BME's anticipated 115,000 tonne surplus this year could be eliminated altogether if inventories do not rise by around 25,000 tonnes a week, starting soon and continuing through September, it said. The LME stock rise of under 5,000 tonnes a week so far in August "is suggestive of a market deficit," it added. Hollands said that the fundamentals of copper were strong and that the impact of the Asian economic crisis on the London Metal Exchange (LME) price was overdone.

BME expects output of semi-manufactured copper products to increase by 2.1 percent and copper consumption to grow by 3.5 percent this year. This compares to trend rate growth of 3.3 percent and 3.9 percent respectively. The downturn in Asian economies is not enough to offset growth in Western Europe and the US, which account for significantly more copper consumption, BME said.

"One factor that may be getting too little attention generally is that the tonnage increases in refined consumption in just three countries, Mexico, India and Turkey, are as large as the total decline in the four hardest-hit Asian economies outside Japan: Korea, Thailand, Indonesia and Malaysia."

Western Europe consumes 3.5 million tonnes a year of copper, the U.S. three million tonnes while Japan, Korea, Thailand, Malaysia, the Philippines and Indonesia combined consume just 2.5 million tonnes, according to BME.

Hollands said that only if there was "a total catastrophe" like a devaluation in China triggering others, which he said was an increasing risk, would there be a surplus of over 250,000 tonnes, which some analysts have predicted.

It further said that mine closures will be needed to keep world output in balance with demand. While mine production and concentrates demand are currently closely matched, surplus capacity due on stream over the next six months will have to be offset by shutdowns to prevent a glut. Cuts could be forced from late August through September if the copper price falls to around 70-72.5 cents a lb ($1,543/$1,598 a tonne), BME said.

London Metal Exchange (LME) cash copper traded around $1,600 a tonne on Thursday. Smelter cuts could also occur, but whether this helps flip the refined market into deficit would depend on the manner in which they are made, according to BME. If smelters act quickly and reduce concentrates throughput below concentrates output, treatment charges would rise and the market would move suddenly into deficit, BME said. But if smelters cut throughput gradually, with mine output, then rebalancing of the market would take longer, BME said. "Today, the most vulnerable smelters are probably smaller operations in China, Central Europe and Russia."