Copper to test US$6,000/t in H2 as new supply comes on line – survey

A surplus in the copper market combined with weaker Chinese demand will put pressure on copper prices, which could test the US$6,000/t (US$2.72/lb) level in H2, according to Thomson Reuters GFMS’ Copper Survey 2014.

Copper prices fell 7.59% in 2013 to average US$7,346/t and saw a 12% dip in the first quarter of this year to an average US$7,008/t.

“Prices fell to a near four-year low in mid-March due to weak Chinese data and concerns over stability in the copper financing trade,” GFMS senior base metals analyst Rob Smith said at the launch of the survey in Santiago on Tuesday evening as part of Cesco Week.

The analyst is expecting copper to average US$6,790/t this year and trade between US$6,000/t and US$7,421/t.

SUPPLY/DEMAND

Global copper production will see above trend growth of 5% per year in 2014-16, according to the survey.

Production growth will be spurred by recently commissioned projects and expansions, such as Polish miner KGHM International’s Sierra Gorda, Japanese consortium Pan Pacific Copper’s Caserones and Chilean state copper producer Codelco’s Ministro Hales in Chile and Glencore Xstrata’s (LSE: GLEN) Las Bambas in Peru, Smith said.

Refined production is expected to grow 4% a year in 2014-16, while consumption will also see an increase of 4% a year in the period.

“China will drive much of the growth,” said Smith, who believes that recent concerns over Chinese demand are overdone and that indicators such as investment in the country’s power sector bode well for copper consumption. “Although [Chinese consumption rates are] slowing to 5-6% a year, the volume base is larger,” he said. China, which consumes around 40% of global copper production, saw its demand for the red metal grow 9% last year compared with a 4% increase in 2012. Global copper demand in 2013 was up by 4.5%.

The US, Japan and Europe are also seeing improved economic conditions, which will boost copper demand this year, according to the analyst.

GFMS is expecting a copper market surplus of an average 350,000t per annum in 2014-16, although 2016 is likely to fall below 200,000t, according to Smith.

REEMERGING TIGHTNESS

New project investment is becoming far less attractive for copper miners due to the lower price environment and the uptrend in Capex and operating costs.

“With a price of around US$7,500/t needed to incentivize investment, the risk of project deferrals and cancelations has increased,” Smith said.

The market surplus will keep prices at an average of US$6,500/t in 2015, but they will rise to an average US$6,800/t in 2016 as the market looks to reemerging tightness towards the end of the decade, according to the analyst.

CRU FORECAST

London-based consultancy CRU made similar projections during the World Copper Conference, also being held in Santiago. The copper market is currently entering the downside of the cycle, with oversupply imminent, CRU’s copper group manager Vanessa Davidson said earlier on Tuesday.

The surplus will not be that big, however, and consumption will outpace supply within a few years, according to Davidson, who sees the market back in deficit by 2018.

CRU is forecasting an average price of US$6,900/t (US$3.130/lb) in 2014, falling to US$6,400/t at the height of the surplus in 2016. “Solid growth in consumption will generate a supply gap by 2020,” Davidson said.

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Copper to test US$6,000/t in H2 as new supply comes on line – survey
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