 "Surplus supply, weak demand from China to hit copper prices")
The global copper market is heading for its fifth consecutive year of surplus and, as a result, price decline in 2016 as demand growth, reined back by China’s continued slowdown, meets with more than ample supply, a GFMS study said.
The study forecasts copper surplus this year of 150,000 tonnes amounting to less than half of last year’s 363,000 tonnes. This does not herald an imminent return to deficit and a marked upturn in prices.
Instead, copper’s recovery will prove a rather lengthy affair, drawn out over a medium term time frame as the market continues to digest the long line of projects encouraged by the last price boom.
In the remainder of 2016, they see potential for fresh weakness to take out earlier multi-year lows and expect prices to average $4,850/tonne. While the worst of the downturn will be over by the end of this year, only modest improvement to $5,100/tonne is expected in 2017 as a surplus of similar size is seen.
In 2018, the supply surplus is forecast to narrow to 60,000 tonnes and facilitate a low double-digit year-on-year price rise to $5,738/tonne; still only two-thirds the value of the 2011 annual average peak of $8,821/tonne.
Meanwhile, copper mine production is expected to be relatively constrained this year at less than 1%, but even on a cautious view the GFMS team is still looking for almost 1.0 million tonnes of new mine supply to find its way to market through to 2018.
The flurry of mine production cutbacks and closures (approaching 700,000 tonnes),triggered by the sharp drop-off in prices from late last year, has slowed to a trickle for now, insulated by a recovery in prices from January’s near-seven year low of $4,318/tonne. At the time of writing, as prices look set to head lower again, more curtailments to high-cost capacity seem likely, but not on a sufficient scale to offset the ongoing, albeit slowing build-up.
Against this backdrop, global refined output growth is expected to remain subdued, below the average of around 3% seen over the past decade, but this will not be enough to right the market as sluggish global demand growth more than offsets, particularly this year.
China’s copper demand, which accounted for around 45% of the total last year, held up better than expected, but will continue to moderate as the transition to a consumer-based economy, hampered by an ailing housing sector, pegs back overall growth. This year, we forecast global demand to rise by 2.3%, above last year’s weak showing of 1.9%, but still well below growth rates either side of 4% seen as recently as 2013/2014.
On a cumulative basis, over the past four years, global refined output has exceeded consumption by more than 850,000 tonnes, with the 150,000 tonne surplus forecast for this year expected to take that figure beyond 1.0 million tonnes. It is only around the turn of the decade that the potential for a markedly tighter market looms when the impact of new mines and expansions has dissipated, and cuts to capital and exploration spending come home to roost.
