Copper prices are likely to remain under pressure in 2014 as the market posts a moderate supply/demand surplus, said Thomson Reuters GFMS Tuesday.
The consultancy released its GFMS Copper Survey 2014 – the fifth edition of the report on the copper market – during CESCO Week copper convention in Santiago, Chile. Analysts said they look for the annual average price to be below $7,000 per metric ton in 2014 for the first time since 2009, with a rest of $6,000 likely over the second half of the year.
Market oversupply limited
Robust demand growth, a tight scrap market and delays in processing concentrate into refined metal limited the size of the market oversupply. Stockpiles of refined metal in China during the final months of 2013 exacerbated tightness in cathode availability, Thomson Reuters GFMS said.
Still, the consultancy said copper prices exhibited a downside bias in 2013 as a sharp acceleration in global mine supply and uncertainties over the global economic recovery dented the red metal’s near-term prospects. More recently, concerns over underlying Chinese demand and the sustainability of the copper financing trade have led to further downward pressure, with copper crashing to a near-four year low in mid-March.
Rob Smith, senior base metals analyst, said: "[While] many commodities markets have been on the back foot of late, the copper market has been particularly susceptible to weakness given its heightened exposure to the Chinese market, through both traditional end-use demand as well as finance-related routes. With the risks to the copper market skewed to the downside, against a backdrop of rising mine supply and modest market surpluses, prices are likely to remain subdued over the rest of this year.”
The consultancy sees a broad range of $6,000 to $7,000 for much of the remainder of 2014.
The copper market is now in a period of strong supply growth as miners begin to deliver on investments made during the so-called boom years, the consultancy said. Thomson Reuters GFMS estimated that global mine production grew by 8% last year to 17.8m tons, with Chile and the Democratic Republic of Congo notable contributors to the rise. Mine production increased across all regions around the world, boosted by higher productivity at major mines, ramp-ups and commissioning of new projects and expansions.
Looking ahead, mine output is about to enter a period of above-trend growth that will lead the copper market into surplus over the medium term, although rising capital costs, easing prices and a shift in mindset amongst mining companies towards one of constraint could lay the foundations for renewed tightness later in the decade, the consultancy said.
Modest growth in refined output
The growth in refined output was more modest, rising 3% to 20.7m tons. This reflected a number of factors, including technical problems at some smelters processing material from new mines, logistical issues, stockpiling of concentrates in remote locations, maintenance shutdowns at key smelters and limited scrap availability.
Global copper consumption, meanwhile, rose 4% last year after a largely flat performance 2012, with last year’s climb the fastest expansion since 2010. A rapid acceleration in Chinese demand growth, to 9% in 2013 from 4% in 2012, was a key driver of the gain, while an improvement in the mature economies also added a degree of support to the global total, the consultancy said. Overall, Thomson Reuters GFMS estimated that all end-use sectors recorded gains last year, including a 6% rise in the electrical and electronic products sector, driven by the ongoing expansion in the Chinese power utilities sector.
Global exchange inventories fell by 83,000 tonnes in 2013, with drawdowns concentrated in the second half, the firm said. Meanwhile, Shanghai bonded warehouse stocks increased in recent months, reversing drawdowns that took place during early and mid-2013, while material is also believed to have accumulated at other coastal cities, amongst other locations. A key factor leading to this stock shift has been the ongoing demand for copper for financing purposes, with concerns over the sustainability of this contributing to a sharp sell-off in copper prices in mid-March, the firm said.
