Fitch Solutions Macro Research, a unit of Fitch Group, expects the global copper market will see a persistent undersupply over the coming years, as global consumption, driven by China’s power and infrastructure sectors and increasingly by rising electric vehicle production, continues to outpace supply growth.
It notes in its ‘Outlook for copper demand’ report, that global refined copper demand will outpace production and maintain the market in deficit over the coming year, driven by solid demand from China’s power and infrastructure sector and rising global electric vehicle production.
It forecast the global refined copper balance to register a deficit of 247 000 t in 2018 and remain undersupplied through to 2021.
Over the longer term, Fitch expects the global copper deficit to gradually shrink and the market to shift into oversupply between 2022 and 2027, as strong prices incentivise producers to ramp up output and invest in new projects.
Globally, refined copper production growth will pick up over coming decades as prices improve, the report states.
Fitch forecasts global output to climb from 23.5-million tonnes in 2018 to 29.9-million tonnes by 2027, averaging 2.7% yearly growth, in line with the average yearly growth of 2.5% over the previous ten-year period.
China’s refined copper production is expected to maintain steady growth, with top producers capitalising on elevated prices.
Chile, the second largest refined copper producer, will benefit from strong copper prices and an investment focused agenda. Fitch forecasts the country’s production to return to growth in 2018, on the back of rising prices and a solid project pipeline.
Further, India is expected to emerge as a key bright spot in global copper production growth, supported by government initiatives to increase metal output and lower production costs.
China’s refined copper consumption growth rate is projected to remain strong this year, owing to the government bolstering infrastructure projects to offset the growing trade dispute with the US.
China will remain the dominant global user of copper, with consumption expected to increase from 11.7-million tonnes in 2018 to 15.9-million tonnes by 2027.
Fitch predicts a muted outlook for US copper demand growth over the coming years owing to its view that President Donald Trump’s infrastructure package will fall considerably short of current mainstream expectations.
It forecasts US refined copper consumption to edge higher, from 1.5-million tonnes in 2018 to 1.7-million tonnes by 2027.
India is expected to drive global copper demand growth, supported by strong economic growth and manufacturing sector growth.
Fitch Solutions forecasts India’s copper consumption to increase from 528 000 t in 2018 to 1.5-million tonnes by 2027, averaging 11.2% yearly growth.
Copper demand is also expected to benefit from the rise of the electric vehicle market and growing popularity of renewable energy sources.
In September 2018, the US announced the implementation of 10% tariffs on $200-billion worth of imports from China, with the US being the second largest importer of Chinese electrical machinery and equipment, and tariffs targeting these affecting Chinese exports, subsequently impacting on China’s copper demand.
However, copper demand in China, the biggest global consumer, remained strong over 2018, suggesting that its trade dispute with the US has not yet impacted on consumption.
The report cites high frequency Bloomberg data that shows Chinese refined copper imports rose by 42.8% year-on-year over the first ten months of 2018.
Also, China’s ban on scrap imports is expected to create a short-term disruption in the global scrap metal markets, with the country accounting for about half the global copper waste and scrap imports.
However, Fitch indicates that the long-term fundamentals will be unlikely to change as a collapse in copper scrap prices will incentivise others countries to increase copper scrap imports and export more refined copper.